UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 
OR

 
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission file number: 000-55231

 

eBullion, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		46-2323674
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
80 Broad Street, 5th Floor New York, NY		10004
(Address of principal executive offices)		(Zip Code)

 

(212) 837-7858

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ   No  ☐

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ   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.

 

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer	☐	Smaller reporting company	þ
	(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No   þ

 

As of November 16, 2015 there were 512,600,000 shares of Common Stock, $0.0001 par value per share, outstanding.

  

 

EBULLION,  INC.

 

TABLE OF CONTENTS

 

				Page No.
		PART I—FINANCIAL INFORMATION
Item 1.		Financial Statements		1
		Condensed Consolidated Balance Sheets as of September 30, 2015 and March 31, 2015		1
		Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended September 30, 2015 and 2014		2
		Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the year ended March 31, 2015 and six months ended September 30, 2015		3
		Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2015 and 2014		4
		Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		19
Item 4.		Controls and Procedures		20
		PART II—OTHER INFORMATION
Item 1.		Legal Proceedings		20
Item 1A.		Risk Factors		20
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.		Defaults Upon Senior Securities		21
Item 4.		Mine Safety Disclosures		21
Item 5.		Other Information		21
Item 6.		Exhibits		21

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, volatility of gold and silver prices, our ability to attract new agents and customers and retain the agents and customers that we currently have, our ability to protect and maintain our intellectual property, the ability of our licensors to obtain and maintain patent protection for the technology or products that we license, our reliance on third-parties, competitive developments, the effect of current and future legislation and regulation and regulatory actions, as well as other risks described more fully in this Quarterly Report on Form 10-Q.

 

As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

 

eBullion, Inc.

Condensed Consolidated Balance Sheets

As of September 30 and March 31, 2015

(Expressed in US dollars)

 

		Unaudited September 30, 2015				Audited March 31, 2015
ASSETS
Current Assets
Cash		$	1,445,818			$	2,513,423
Commissions receivable			40,510				118,298
Deposits and prepaid expenses			338,035				52,452
Prepaid income taxes			41,419				41,396
Total current assets			1,865,782				2,725,569
Noncurrent Assets
Deposits and prepaid expenses			147,398				223,470
Equipment, net			185,033				225,131
Loan receivable from Global Long			774,199				-
Deferred income taxes			15,828				10,522
Total noncurrent assets			1,122,458				459,123
Total assets		$	2,988,240			$	3,184,692
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	31,784				35,048
Customer deposits			153,974				92,613
Income taxes			149,234				145,883
Total current liabilities			334,992				273,544
Total liabilities			334,992				273,544
Commitments
Shareholders’ Equity
Common stock, $0.0001 par value, 1,000,000,000 shares authorized, 512,600,000 shares issued and outstanding (1)			51,260				51,260
Additional paid in capital (1)			1,477,404				1,477,404
Retained earnings			1,123,501				1,383,704
Accumulated other comprehensive income (loss)			1,083				(1,220	)
Total shareholders’ equity			2,653,248				2,911,148
Total liabilities and shareholders’ equity		$	2,988,240			$	3,184,692

 

(1)

The capital accounts of the Company have been restated to reflect the 10 for 1 stock split which was effective in March 2015. See Note 13 for further discussion.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

eBulllion, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US dollars

 

		Six Months Ended								Three Months Ended
		2015				2014				2015				2014
REVENUES
Commission revenue		$	842,567			$	1,512,236			$	308,419			$	803,613
EXPENSES
General and administrative			765,317				813,594				402,090				381,274
Employee compensation and benefits			328,615				405,894				162,709				199,643
Depreciation			40,344				40,343				20,172				20,174
Total expenses			1,134,276				1,259,831				584,971				601,091
INCOME (LOSS) FROM OPERATIONS			(291,709	)			252,405				(276,552	)			202,522
OTHER INCOME
Rental income			9,030				-				-				-
Interest income, net			21,356				2,323				11,645				17
Total other income			30,386				2,323				11,645				17
INCOME (LOSS) BEFORE INCOME TAXES			(261,323	)			254,728				(264,907	)			202,539
INCOME TAX PROVISION (BENEFIT)
Current			4,180				62,621				-				40,830
Deferred			(5,300	)			(5,187	)			(2,650	)			(2,594	)
Total income tax provision (benefit)			(1,120	)			57,434				(2,650	)			38,236
NET INCOME (LOSS)			(260,203	)			197,294				(262,257	)			164,303
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation			2,303				(2,399	)			682				(2,460	)
COMPREHENSIVE INCOME (LOSS)		$	(257,900	)		$	194,895			$	(261,575	)		$	161,843
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted (1)			512,600,000				512,600,000				512,600,000				512,600,000
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings (loss) per common share		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00

 

(1)

The Company’s weighted average common shares outstanding for both basic and diluted earnings per share have been restated for the effects of the 10 for 1 stock split which was effective in March 2015. See Note 13 for further discussion.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

eBullion, Inc.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

For the Year Ended March 31, 2015 and Six Months Ended September 30, 2015

(Expressed in US dollars)

 

		Common Stock								Additional								Accumulated Other				Total
		Number of				Par				Paid in				Retained				Comprehensive				Shareholders’
		Shares				Value				Capital				Earnings				Income (Loss)				Equity
BALANCE, March 31, 2014 – Audited (1)			512,600,000			$	51,260			$	1,477,404			$	846,405			$	(1,017	)		$	2,374,052
Net income			-				-				-				537,299				-				537,299
Foreign currency translation adjustment			-				-				-				-				(203	)			(203	)
BALANCE, March 31, 2015 - Audited			512,600,000			$	51,260			$	1,477,404			$	1,383,704			$	(1,220	)		$	2,911,148
Net loss			-				-				-				(260,203	)			-				(260,203	)
Foreign currency translation adjustment			-				-				-				-				2,303				2,303
BALANCE, September 30, 2015 - Unaudited			512,600,000			$	51,260			$	1,477,404			$	1,123,501			$	1,083			$	2,653,248

  

(1)

The capital accounts of the Company have been restated to reflect the 10 for 1 stock split which was effective in March 2015. See Note 13 for further discussion.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

eBullion, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended September 30, 2015 and 2014

(Expressed in US dollars)

 

		2015				2014
OPERATING ACTIVITIES:
Net income (loss)		$	(260,203	)		$	197,294
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization			40,344				40,343
Changes in operating assets and liabilities:
Commissions receivable			77,838				(46,916	)
Account receivable			-				(22,705	)
Amount due from shareholder			-				(29,699	)
Deposits and prepaid expenses			(209,317	)			1,815
Accounts payable and accrued liabilities			(3,466	)			(27,081	)
Customer deposits			61,297				31,065
Income taxes payable			4,180				62,621
Deferred income taxes			(5,300	)			(5,187	)
Net cash provided by (used in) operating activities			(294,627	)			201,550
INVESTING ACTIVITIES:
Loan receivable from eBullion Trade			-				997,736
Loan receivable from Global Long			(774,042	)			-
Net cash provided by (used in) investing activities			(774,042	)			997,736
NET INCREASE (DECREASE) IN CASH			(1,068,669	)			1,199,286
EFFECT OF EXCHANGE RATE CHANGES ON CASH			1,064				(2,219	)
Cash, beginning of period			2,513,423				808,039
Cash, end of period		$	1,445,818			$	2,005,106
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes		$	-			$	-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

1.	Nature of Operations and Basis of Presentation

 

eBullion, Inc. (“eBullion” or “the Company”) was incorporated in Delaware on January 28, 2013. On April 3, 2013, the Company’s shareholders exchanged 100% of their shares for 100% of the shares of Man Loong Bullion Company Limited (“Man Loong”) a company which was incorporated in Hong Kong in 1974, and in 2007, was re-registered under Hong Kong law as a limited liability company. Upon completion of this transaction, Man Loong became a 100% owned subsidiary of eBullion. This transaction was accounted for as a reverse take-over.

 

The Company provides trading services for gold and silver trading positions on Man Loong’s proprietary, 24-hour electronic trading platform, and its telephone transaction system located in Hong Kong. The Company is licensed through the Chinese Gold and Silver Exchange Society (“CGSE”) a self-regulatory organization located in Hong Kong which acts as an exchange for the trading of Kilo gold and Loco London gold and silver price indices quoted on the London Metals Exchange.

 

The Company is not a counter party for trades entered through its trading platform and telephone transaction system, and instead, contracts with agents who pay Man Loong a fixed commission on each trade that the Company executes for its agents and their customers.

 

Basis of Presentation

 

The Company’s unaudited condensed 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 and Man Loong’s fiscal year end is March 31.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements as of Sept 30, 2015 and March 31, 2015 and for the three and six months ended September 30, 2015 and 2014, include the accounts of eBullion and its wholly owned subsidiary, Man Loong. All significant intercompany transactions have been eliminated.

 

2.	Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in these estimates are recorded when known. Significant estimates made by management include:

 

	●	Valuation of assets and liabilities
	●	Useful lives of equipment
	●	Accounting for transactions with variable interest entities
	●	Other matters that affect the reported amounts and disclosures of contingencies in the consolidated financial statements.

 

Actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made to amounts reported in the previous periods to conform to the current presentation. Such reclassifications had no effect on net income (loss).

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(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.

 

Advertising

 

Advertising costs are incurred for the production and communication of advertising, as well as other marketing activities. The Company expenses the cost of advertising as incurred. The Company did not capitalize any production costs associated with advertising for the three and six months ended September 30, 2015 and 2014. The total amount charged to advertising expense was $4,696 and $9,173 for the six months ended September 30, 2015 and 2014, respectively, and $2,818 and $6,540 for the three months ended September 30, 2015 and 2014, respectively.

 

Cash and cash equivalents

 

Cash and cash equivalents consist primarily of cash on deposit, certificates of deposits, money market accounts, and investment grade commercial paper that are readily convertible to cash and purchased with original maturities of six months or less. As of September 30, 2015 and March 31, 2015, the Company had no cash equivalents.

 

Fair Value of Financial Instruments

 

ASC 820, “Fair Value Measurements”, defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The carrying amounts reported in the 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 Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

2.	Summary of Significant Accounting Policies – continued

 

Commissions Receivable

 

Commissions receivable represent commissions to be collected from agents for their customers’ trades executed across Man Loong’s electronic trade platform and telephone transaction system through the balance sheet date. Commissions receivable are typically remitted to the Company within 30 days of trade execution. The Company has not historically incurred credit losses on these commissions receivable. As of September 30, 2015 and March 31, 2015, the Company had no reserve for credit losses nor had it incurred any bad debts for the three and six months ended September 30, 2015 and 2014.

 

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 unaudited condensed consolidated statements of comprehensive income (loss).

 

Variable Interest Entity

 

A variable interest entity (“VIE”) is a legal entity, other than an individual, used for business purposes that either (a) has equity investors that do not provide sufficient financial resources for the entity to support its activities, or (b) the equity investors lack any one of the following three criteria:

 

	●	The power to direct activities that most significantly impact the entity’s economic performance
	●	The obligation to absorb the expected losses of the entity
	●	The right to receive the expected residual returns.

 

A VIE is required to be consolidated by a reporting entity if it has a controlling financial interest in the VIE. A reporting entity is deemed to have a controlling financial interest in a VIE if it both has the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive economic benefits from the VIE that could potentially be significant to the VIE.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

2.	Summary of Significant Accounting Policies – continued

 

Reporting Currency and Foreign Currency Translation

 

As of September 30 and March 31, 2015 and for the three and six months ended September 30, 2015 and 2014, 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 at September 30 and March 31, 2015 and for the three and six months ended September 30, 2015 and 2014 are as follows:

 

			2015				2014
	Year end March 31, 2015 USD/HKD exchange rate			7.7542
	Period end USD/HKD exchange rate			7.7500				7.7632
	Average USD/HKD exchange rate:
	Six months ended September 30			7.7515				7.7517
	Three months ended September 30			7.7513				7.7507

 

Long-Lived Assets

 

The Company periodically evaluates the carrying value of long-lived assets when events and circumstances warrant such review. The carrying value of a long-lived assets is considered impaired when the anticipated undiscounted cash flow from such an asset is separately identifiable and is less than the carrying value. In that event, a loss is recognized in the amount by which the carrying value exceeds the fair market value of the long-lived asset. The Company has identified no such impairment losses.

 

Accounts payable and accrued liabilities

 

Accounts payable and accrued liabilities at September 30, 2015 and March 31, 2014 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 September 30, 2015 and March 31, 2015 were accepted pursuant to the Company’s agreements with certain of its independent agents. Under terms of those agreements, the Company accepts margin deposits for certain of the agents’ customers who prefer that the Company hold those deposits. If an agent’s customer suffers a trading loss equaling 80% or more of the customers’ deposit balance, the customer is required to increase the balance of his deposit or the customer’s trading position is closed and the remaining deposit balance is remitted to the agent in order to fund the customer’s trading losses.

 

Accordingly, the Company had no risk of loss related to customer deposits at September 30, 2015 and March 31, 2015.

 

Accumulated Other Comprehensive Income (Loss)

 

The Company’s accumulated other comprehensive income (loss) as September 30, 2015 and 2014 consist 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 Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

2.	Summary of Significant Accounting Policies - continued

 

Rental Income

 

Rental income consists of rent charged for a portion of Man Loong’s office facility which is leased on a short term lease arrangement. Agreed rental payments were $11,350 per month from April 1, 2014 until January 1, 2015, when the rent was reduced to $4,514 per month. The lease arrangement expired on March 31, 2015. Though not subject to a formal lease agreement, in April 2015, Man Loong extended the lease arrangement for a further 2 months, with agreed rental payments of $4,514 per month. For the six months ended September 30, 2015 and 2014, Man Loong recognized rental income of $9,030 and $0, respectively, and $0 and $0 for the three months ended September 30, 2015 and 2014, respectively in the accompanying unaudited condensed consolidated statements of comprehensive income.

 

Income Taxes

 

The Company utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company has adopted the provisions of the interpretation, of ASC 740, Accounting for Uncertainty in Income Taxes. The Company did not have any material unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing the interpretation. The Company files income tax returns in the United States and the Company is subject to federal income tax examinations for the fiscal years ended March 31, 2015 and 2014. Man Loong files income tax returns in Hong Kong and is no longer subject to tax examinations by tax authorities for years before 2008. At September 30, 2015, 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.

 

On March 12, 2015, the Company effected a 10 for 1 stock split, whereby it exchanged 10 of its shares for every 1 share issued at outstanding before the split. Following the share split, the Company has 512,600,000 shares issued and outstanding. All share and per share amounts for the prior period have been retroactively restated to give effect of the 10 for 1 share split.

 

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.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

2.	Summary of Significant Accounting Policies - continued

 

Recent Accounting Pronouncements

 

In February 2015, the FASB issued ASU 2015-02 Consolidations (Topic 810) Amendments to the Consolidation Analysis. ASU 2015-02 simplifies consolidation accounting for VIEs by placing more emphasis on the risk of loss and simplifying the application of related party guidance when determining whether a controlling financial interest in a VIE exists. ASU 2015-02 also simplifies consolidation analysis for public and private companies in several industries that typically make use of limited partnerships. ASU 2015-02 is effective for years beginning after December 15, 2015 and early adoption is permitted. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

In August 2015, the FASB issued ASU 2015-14 Revenue From Contracts With Customers (Topic 606) Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09, Revenue from Contracts With Customers (Topic 606) to years beginning after December 31, 2018 and early adoption is permitted. ASU 2014-09 clarifies the principles for revenue recognition and develops common revenue recognition standards for US GAAP and International Financial Reporting Standards (IFRS). The adoption of ASU 2015-14 and ASU 2014-09 is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

Recent Accounting Pronouncements, Continued

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future unaudited condensed consolidated financial statements.

 

3.	Deposits and Prepaid Expenses
	Deposits and prepaid expenses consisted of the following as of September 30, 2015 and March 31, 2015:

 

			Unaudited				Audited
			September 30, 2015				March 31, 2015
	Current
	Prepaid rent and occupancy expenses		$	338,035			$	52,452
	Noncurrent
	Rent and occupancy deposits			147,398				223,470
	Total deposits and prepaid expenses		$	485,433			$	275,922

 

4.	Loan receivable from Global Long

 

On April 3, 2015, Man Loong loaned Global Long Inc. Limited (“Global Long”) $774,199 (HKD$6,000,000). Global Long is registered in Hong Kong and through its subsidiaries in the Peoples Republic of China, is engaged in trading silver contracts as an electronic trading member of the Guangdong Precious Metal Exchange. The loan bears interest at a 6% annual rate, matures on its 5th anniversary and is secured by a first right of claim on a bank deposit held by a subsidiary of Global Long. Under terms of the loan, interest is payable to Man Loong quarterly and Global Long has the right to repay the loan at any time before the maturity date. Until all principal and accrued interest are repaid on the loan, Global Long may not enter into additional borrowings without Man Loong’s written permission, and upon certain events of default, the Loan becomes due on demand. The purpose of the loan was to establish a relationship with Global Long with the intent of becoming their first choice for Global Long’s customers who wish to trade in gold trading positions through the CGSE.

 

The Company determined that the loan to Global Long does not give the Company a variable interest in Global Long and that Global Long is not a variable interest entity (“VIE”) because Man Loong does not have the power to direct any of the activities of Global Long that significantly impact its economic performance. Accordingly, the Company has not consolidated Global Long into its unaudited condensed consolidated financial statements.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

5.	Loan receivable from eBullion Trade

 

In July 2013, the Company’s wholly-owned subsidiary Man Loong, loaned eBullion Trade Company Limited (“eBullion Trade”) $997,049 (RMB 6,100,000). eBullion Trade is a development stage entity pursuing a license in the Peoples’ Republic of China for the purpose of engaging in trading silver contracts as an electronic trading member of the Guangdong Precious Metal Exchange (“GPME”).

 

The Company determined that the loan to eBullion Trade gave the Company a variable interest in eBullion Trade and that eBullion Trade was a variable interest entity (“VIE”) because the equity investor of eBullion Trade on the date of the loan lacked sufficient equity at risk to finance its activities without the loan. However, the Company determined that it was not the primary beneficiary of the VIE, because Man Loong did not have the power to direct the activities of the VIE that significantly impacted its economic performance. Accordingly, the Company did not consolidate eBullion Trade into its unaudited condensed consolidated financial statements.

 

The loan was unsecured, bore no interest and matured on April 17, 2014. Under terms of the loan, in the event that eBullion Trade’s GPME application was approved, it had the option to repay the loan in cash or by transferring 100% of its outstanding stock to Man Loong.

 

In April 2014, eBullion Trade informed Man Loong that it intended to repay the loan in cash in accordance with the terms of the loan agreement, and the loan was repaid in full on May 2, 2014.

 

6.

Equipment

 

Equipment, including leasehold improvements, consisted of the following as of September 30, 2015 and March 31, 2015:

 

			Unaudited				Audited
			September 30, 2015				March 31, 2015
	Office equipment		$	305,784			$	305,557
	Computer equipment			41,577				41,546
	Furniture and fixtures			56,157				56,117
				403,518				403,220
	Less: Accumulated depreciation			(218,485	)			(178,089	)
	Equipment, net		$	185,033			$	225,131

 

Depreciation expense was $40,344 and $40,343 for the six months ended September 30, 2015 and 2014, respectively, and $20,172 and $20,174 for the three months ended September 30, 2015 and 2014, respectively and was recorded as depreciation expense in the accompanying unaudited condensed consolidated statements of comprehensive income (loss).

 

7.	Customer Deposits

 

Customer deposits were $153,974 and $92,613 at September 30, 2015 and March 31, 2015, respectively, and were recorded as a current liability in the accompanying condensed consolidated balance sheets.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

8.	General and Administrative Expenses

 

General and administrative expenses consist of the following for the three and six months ended September 30, 2015 and 2014.

 

			Unaudited				Unaudited				Unaudited				Unaudited
			Six months				Six months				Three months				Three months
			2015				2014				2015				2014
	Marketing expenses		$	172,108			$	148,532			$	84,758			$	67,584
	Trading platform rent			83,465				93,909				39,183				47,562
	Transportation			29,803				36,358				12,457				19,040
	Internet			8,908				12,214				4,454				6,284
	Travel and entertainment			3,852				7,799				701				4,058
	Computers and software			16,237				21,612				8,442				7,279
	Legal and professional			80,354				122,267				54,088				44,033
	Licenses			26,969				1,551				25,073				821
	Occupancy			298,774				295,508				149,234				147,961
	Advertising			4,696				9,173				2,818				6,540
	Other taxes			-				1,050				-				-
	Other			40,151				63,621				20,882				30,112
	Total general and administrative expense		$	765,317			$	813,594			$	402,090			$	381,274

 

9.	Income Taxes

 

Income (loss) before income taxes as shown in the accompanying unaudited condensed consolidated statements of comprehensive income (loss) is summarized below for the three and six months ended September 30, 2015 and 2014.

 

			Unaudited				Unaudited				Unaudited				Unaudited
			Six months				Six months				Three months				Three months
			2015				2014				2015				2014
	United States		$	(26,089	)		$	(97,291	)		$	(16,445	)		$	(31,167	)
	Hong Kong			(235,234	)			352,019				(248,462	)			233,706
	Income before income taxes		$	(261,323	)		$	254,728			$	(264,907	)		$	202,539

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

9.	Income Taxes, Continued

 

The provision (benefit) for income taxes consists of the following for the three and six months ended September 30, 2015 and 2014:

 

			Unaudited				Unaudited				Unaudited				Unaudited
			Six months				Six months				Three months				Three months
			2015				2014				2015				2014
	Current:
	United States		$	-			$	-			$	-			$	-
	Hong Kong			4,180				62,621				-				40,830
	Total current provision			4,180				62,621				-				40,830
	Deferred:
	United States			-				-				-				-
	Hong Kong			(5,300	)			(5,187	)			(2,650	)			(2,594	)
	Total deferred benefit			(5,300	)			(5,187	)			(2,650	)			(2,594	)
	Total income tax provision		$	(1,120	)		$	57,434			$	(2,650	)		$	38,236

  

The reconciliation of the income tax provision to the amount computed by applying the U.S. statutory federal income tax rate to income (loss) before income taxes is as follows:

 

			Unaudited				Unaudited				Unaudited				Unaudited
			Six months				Six months				Three months				Three months
			2015				2014				2015				2014
	Income tax provision (benefit) at the U.S. statutory tax rate		$	(88,850	)		$	86,608			$	(90,068	)		$	68,863
	Valuation allowance on U.S. net operating loss carryforwards			8,870				33,079				5,591				10,597
	Impact of foreign operations			78,860				(61,603	)			81,827				(40,899	)
	Other			-				(650	)			-				(325	)
	Income tax provision (benefit)		$	(1,120	)		$	57,434			$	(2,650	)		$	38,236

 

At September 30, 2015, the Company had U.S. net operating loss carryforwards which expire in 2035. Based on the available evidence, it is uncertain whether future U.S. taxable income will be sufficient to offset the estimated net loss carryforwards, accordingly, the Company has recorded a valuation allowance against all of the net operating loss carryforwards as of September 30 2015.

 

At September 30 and March 31, 2015, the Company’s and Man Loong’s differences between the book and tax basis of equipment gave rise to deferred income tax assets of $15,282 and $10,522, respectively which are recorded as noncurrent in the accompanying condensed consolidated balance sheets. The Company had no other differences between the book and tax basis of assets and liabilities as of September 30 and March 31, 2015.

 

As a result of the implementation of ASC 740, Accounting for Income Taxes, the Company recognized no material adjustment to unrecognized tax benefits. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in the accompanying unaudited condensed consolidated statements of comprehensive income. The Company has incurred no interest or penalties during the three and six months ended September 30, 2015 and 2014.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

10.	Earnings (Loss) Per Share

 

Earnings (loss) per share (“EPS”) information for the three and six months ended September 30, 2015 and 2014 was determined by dividing net income (loss) for the period by the weighted average number of both basic and diluted shares of common stock and common stock equivalents outstanding.

 

As of and for the three and six months ending September 30, 2015 and 2014, the Company did not have any securities that may potentially dilute basic earnings (loss) per share. Therefore basic and diluted earnings (loss) per share for the respective years are the same.

 

			Unaudited				Unaudited				Unaudited				Unaudited
			Six months				Six months				Three months				Three months
			2015				2014				2015				2014
	Numerator
	Net income (loss) attributable to common shareholders		$	(260,203	)		$	197,294			$	(262,257	)		$	164,303
	Denominator
	Weighted average shares of common stock (basic and diluted)			51,260,000				51,260,000				51,260,000				51,260,000
	Basic and diluted earnings (loss) per share		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00

 

11.	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 six months ended September 30, 2015 and 2014, are rental fees which were paid to True Technology of $23,221 and $23,224 respectively. Rental fees paid to True Technology for the three months ended September 30, 2015 and 2014 were $11,611 and $11,612 respectively.

  

Included in employee compensation and benefits in the accompanying unaudited condensed consolidated statements of comprehensive income for the six months ending September 30, 2015 and 2014, are salaries and director compensation of $15,841 and $23,220 respectively, which were paid to two of the Company’s directors and shareholders. Compensation and benefits paid to these shareholders for the three months ended September 30, 2015 and 2014 were $7,740 and $11,612 respectively.

 

 

eBullion, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three and Six Months Ended September 30, 2015 and 2014

(Expressed in US Dollars)

 

12.	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.

 

On 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 $3,868 per month for 24 months. Subsequent to year end, the trading platform lease with True Technology was renewed for 2 years with monthly payment of approximately $3,868 until March 31, 2017.

 

Future annual minimum lease payments, including maintenance and management fees, for non-cancellable operating leases and trading platform fees, are as follows:

 

Years ending September 30,

 

	2016		$	422,714
	2017			349,408
	2018			326,203
	2019			13,592
			$	1,111,916

 

13.	Common Stock

 

On April 3, 2013, the Company issued 507,600,000 of its common stock as founder shares in exchange for 100% of Man Loong’s outstanding shares to complete the Merger.

 

Subsequent to the Merger, the Company issued 5,000,000 shares of common stock, with par value $0.0001 to various investors for total cash proceeds of $240,044.

 

On March 12, 2015, eBullion increased the number of its authorized shares from 500,000,000 to 1,000,000,000. The par value of the Company’s shares remained unchanged at $.0001. The Company also effected a 10 for 1 stock split, whereby it exchanged 10 of its shares for every 1 share issued at outstanding before the split. Following the share split, the Company has 512,600,000 shares issued and outstanding. All share and per share amounts for the prior period have been retroactively restated to give effect of the 10 for 1 share split.

 

  

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this quarterly report. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2015, found in our Annual Report on Form 10-K. This discussion may contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”

 

OVERVIEW

 

On April 3, 2013, we entered into a Contribution Agreement with the shareholders of Man Loong, whereby we acquired 100% of the issued and outstanding capital stock of Man Loong from its stockholders, in exchange for 507,600,000 newly issued shares of our common stock, with a par value of $0.0001. After the transaction, Man Loong became our wholly owned subsidiary.

 

This share exchange transaction (the “Merger”) was accounted for as a recapitalization whereby Man Loong was the acquirer for financial reporting purposes and eBullion was the acquired company.  Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger were those of Man Loong and were recorded at the historical cost basis.  The consolidated financial statements after completion of the Merger include the assets and liabilities of eBullion and Man Loong, historical operations of Man Loong and operations of eBullion from the closing date of the Merger.  Common stock and the corresponding capital amounts of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger.  In conjunction with the Merger, Man Loong received no cash and assumed no liabilities of eBullion.

 

In March 2015, we increased the number of our authorized shares from 500,000,000 to 1,000,000,000. The par value of our shares remained unchanged at $.0001. We also effected a 10 for 1 stock split, whereby we exchanged 10 of our shares for every 1 share issued at outstanding before the split. Following the share split, we have 512,600,000 shares issued and outstanding. All share and per share amounts for the prior year have been retroactively restated to give effect of the 10 for 1 share split.

 

Since April 3, 2013, through our subsidiary, Man Loong, we have been engaged in the precious metals trading business, facilitating the execution of gold and silver price contracts for customers of its agents via an electronic trading platform which we license from an affiliated company, True Technology. In facilitating trades of these price contracts, Man Loong acts in its capacity as an officially designated electronics trading member of the Chinese Gold and Silver Exchange Society, or the “CGSE”, in Hong Kong. Man Loong holds a Type AA License which it uses to engage in the electronic trading of Kilo Gold and Loco London Gold and Silver. The electronic trading platform that Man Loong licenses from True Technology provides its agents’ customers with CGSE price quotations on gold and silver price contracts, on a Loco London basis, as well as information updates on the gold and silver market, based on an evaluation of third-party market pricing sources such as Reuters or Bloomberg. Man Loong’s 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.

 

 

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 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 will suffer. In addition, past trends indicate that at times of price volatility in the prices of gold and silver, Man Loong’s agents’ customers tend to increase the number of trades that they execute across Man Loong’s trading platforms and in times of low gold and silver price volatility Man Loong’s agents’ customers decrease the number of trades. The number of agents was substantially unchanged during the three and six months ended September 30, 2015 and 2014, however, the number of agent customers decreased by 2 during the three months ended September 30, 2015 and those 2 customers historically accounted for more than 10% of commission revenue.  Additionally, the price of gold remained in its current trading range of approximately $1,200 per ounce and the price of silver remained in its current trading range of approximately $15 per ounce.  For the three and six months ended September 30, 2015, revenues decreased by $495,194 or 61.6%, and $669,669 or 44.3%, respectively, as compared to the three and months ended September 30, 2014. We believe that revenues decreased primarily because of the continued lack of volatility in gold and silver prices. A decrease in the number of agents and their customers or the continued lack of volatility in gold prices in the future could result in declines in trade revenue compared to past results.

 

Our principal offices are located at 80 Broad Street, New York, New York 10004, (212) 837-7858.  Man Loong currently has one office in Hong Kong.  Man Loong’s principal executive offices are located at 8/F, Tower 5, China Hong Kong City, 33 Canton Road, Tsim Sha Tsui, Hong Kong. The telephone number at Man Loong’s principal executive office is +852-2155-3999. All of Man Loong’s transactions and the technologies, including the servers that carry out these transactions, are all processed and located in Hong Kong.

 

Our Corporate History and Background

 

We were incorporated under the laws of the State of Delaware on January 28, 2013. We were initially formed to develop software for use in on-line trading of gold and silver contracts. Since the acquisition of Man Loong, our business development focus has been, and we expect will continue to be, solely on increasing Man Loong’s market share for the on-line trading of gold and silver contracts within the Hong Kong market while developing a business model for the on-line trading of gold and silver contracts by Man Loong in the People’s Republic of China.

 

 

Results of Operations for the Three Months Ended September 30, 2015 and 2014

 

Man Loong’s revenue was $308,419 and $803,613 for the quarters ended September 30, 2015 and 2014, respectively, a decrease of $495,194 or 61.6%. All of Man Loong's revenue was derived from commissions on trades placed through its trading platform and telephone transaction system.   During the three months ended September 30, 2015 and 2014, the number of agents remained constant, however the number of agent customers decreased by 2 during the three months ended September 30, 2015 and those 2 customers historically accounted for more than 10% of commission revenue. We believe that the lack of volatility in gold and silver prices during the three months ended September 30, 2015, was the primary cause of the decrease in revenue from the prior quarter. The lack of volatility in gold and silver prices and decreases in the number of agents and their customers could continue to result in less trade revenue as it has in the past.

 

Total expenses were $584,971 for the quarter ended September 30, 2015 as compared to $601,091 for the quarter ended September 30, 2014, a decrease of $16,120 or 2.7%.   Approximately 69% of our total expenses for the quarter ended September 30, 2015 were attributed to general and administrative expenses compared to 63% for the quarter ended September 30, 2014.  Man Loong’s largest general and administrative expense historically has been its marketing expense, which includes payment made to agents for their provision of sales, marketing and customer support services.  Marketing expense was $84,758 or 14% of Man Loong’s total expenses for the quarter ended September 30, 2015 and $67,584 or 11% of Man Loong’s total expenses for the quarter ended September 30, 2014. The increase in marketing expenses in the quarter ended September 30, 2015 as compared to the prior year was the result of Man Loong increasing headcount and expanding its marketing effort to attract new agents and customers.  Man Loong’s other large expenses were (i) its trading platform hosting and rent which was $39,183 or 7% of its total expenses for the quarter ended September 30, 2015 and $47,562 or 8% of its total expenses for the quarter ended September 30, 2014, (ii) its legal and professional expense which was $54,088 or 9% of its total expenses for the quarter ended September 30, 2015 and $44,033 or 7% of its total expenses for the quarter ended September 30, 2014 and (iii) its occupancy costs for the rent and management fee paid for its offices which was $149,234 or 26% of Man Loong’s total expenses for the quarter ended September 30, 2015 and $147,961 or 25% of its total expenses for the quarter ended September 30, 2014. For the quarters ended September 30, 2015 and 2014, employee compensation and benefits was $162,709 and $199,643 or 28% and 33% of Man Loong’s total expenses for the quarters ended September 30, 2015 and 2014, respectively.

 

Net loss was $262,257 for the quarter ended September 30, 2015, compared to net income of $164,303 for the quarter ended September 30, 2014 a decrease of $426,560 or 260%.  The decrease in net income was primarily the result of Man Loong’s decrease in revenue while its, marketing, occupancy and legal and professional expenses increased as a percentage of revenue, offset in part by a decrease in employee compensation and trade platform rent expense as a percentage of revenue for the quarter ended September 30, 2015 as compared to the quarter ended September 30, 2014.

  

Results of Operations for the Six Months Ended September 30, 2015 and 2014

 

Man Loong’s revenue was $842,567 and $1,512,236 for the six months ended September 30, 2015 and 2014, respectively, a decrease of $669,669 or 44.3%. All of Man Loong's revenue was derived from commissions on trades placed through its trading platform and telephone transaction system.   During the six months ended September 30, 2015 and 2014, the number of agents remained constant, however the number of agent customers decreased by 2 during the three months ended September 30, 2015 and those 2 customers historically accounted for more than 10% of commission revenue. We believe that the lack of volatility in gold and silver prices during the six months ended September 30, 2015, was the primary cause for the decrease in revenue from the prior year. The lack of volatility in gold and silver prices and decreases in the number of agents and their customers could continue to result in less trade revenue as it has in the past.

 

Total expenses were $1,134,276 for the six months ended September 30, 2015 as compared to $1,259,831 for the six months ended September 30, 2014, a decrease of $125,555 or 10%.   Approximately 67% of our total expenses for the six months ended September 30, 2015 were attributed to general and administrative expenses compared to 65% for the six months ended September 30, 2014.  Man Loong’s largest general and administrative expense historically has been its marketing expense, which includes payment made to agents for their provision of sales, marketing and customer support services.  Marketing expense was $172,108 or 15% of Man Loong’s total expenses for the six months ended September 30, 2015 and $148,532 or 12% of Man Loong’s total expenses for the six months ended September 30, 2014. The increase in marketing expenses in the six months ended September 30, 2015 as compared to the prior year was the result of Man Loong increasing headcount and expanding its marketing effort to attract new agents and customers.  Man Loong’s other large expenses were (i) its trading platform hosting and rent which was $83,465 or 7% of its total expenses for the six months ended September 30, 2015 and $93,909 or 7% of its total expenses for the six months ended September 30, 2014 (ii) its legal and professional expense which was $80,534 or 7% of its total expenses for the six months ended September 30, 2015, and $122,267 or 10% of its total expenses for the six months ended September 30, 2014, and (iii) its occupancy costs for the rent and management fee paid for its offices which was $298,774 or 26% of Man Loong’s total expenses for the six months ended September 30, 2015 and $295,508 or 23% of its total expenses for the six months ended September 30, 2014. For the six months ended September 30, 2015 and 2014, employee compensation and benefits was $328,615 and $405,894 or 29% and 32% of Man Loong’s total expenses for the six months ended September 30, 2015 and 2014, respectively.

 

Net loss was $260,203 for the six months ended September 30, 2015, compared to net income of $197,294 for the six months ended September 30, 2014 a decrease of $457,497 or 232%.  The decrease in net income was primarily the result of Man Loong’s decrease in revenue while its, occupancy and marketing expenses increased as a percentage of revenue, offset in part by a decrease in employee compensation and legal and professional expense as a percentage of revenue for the six months ended September 30, 2015 as compared to the six months ended September 30, 2014.

 

 

LIQUIDITY

 

To date, eBullion has funded its operations from cash flows generated from operations. As of September 30, 2015 eBullion had cash totaling $1,445,818, total assets of $2,988,240, total liabilities of $334,992 and working capital of $1,530,790. Net cash used in operations for the six months ended September 30, 2015 was $294,627 as compared to net cash provided by operations of $201,550 for the six months ended September 30, 2014. The increase in net cash used in operations for the six months ended September 30, 2015 included a decrease in net income of $457,497, an increase in deposits and prepaid expenses of $209,317, a decrease in accounts payable and accrued liabilities of $3,466 and an increase in deferred income taxes of $5,300, offset by a decrease in commissions receivable of $77,838, an increase in customer deposits of $61,297, and an increase in income taxes payable of $4,180. Net cash used in investing activities was $774,042 for the six months ended September 30, 2015 compared to net cash provided by investing activities for the six months ended September 30, 2014 of $997,736. The increase in net cash used in investing activities for the six months ended September 30, 2015 was primarily because Man Loong loaned $774,199 to Global Long Limited Inc. (“Global Long”) during the six months ended September 30, 2015 while the loan receivable from eBullion Trade was repaid in the six months ended September 30, 2014. Global Long is registered in Hong Kong and through its subsidiaries in the Peoples Republic of China, is engaged in trading silver contracts as an electronic trading member of the Guangdong Precious Metal Exchange. The loan bears interest at a 6% annual rate, matures on its 5th anniversary and is secured by a first right of claim on a bank deposit held by a subsidiary of Global Long. Under terms of the loan, interest is payable to Man Loong quarterly and Global Long has the right to repay the loan at any time before the maturity date. Until all principal and accrued interest are repaid on the loan, Global Long may not enter into additional borrowings without Man Loong’s written permission, and upon certain events of default, the Loan becomes due on demand. The purpose of the loan was to establish a relationship with Global Long with the intent of becoming the first choice for Global Long’s customers who wish to trade in gold trading positions through the CGSE. Net cash provided by (used in) financing activities was $0 and $0 for the six months ended September 30, 2015 and 2014, respectively.

 

As of September 30, 2015 and for the six months then ended, Man Loong’s customer deposits increased from $92,613 at March 31, 2015 to $153,974 at September 30, 2015, an increase of $61,361 or 66.2%. Man Loong has been working with its agents and their customers to reduce the number of customers who hold the minimum deposit required to secure the customer’s account from trading losses with Man Loong instead of with the customer’s agent.  However, Man Loong will continue to offer this service to customers who request it, and expects the number of customers who hold minimum deposit funds in its accounts to increase in the future if that service is requested by Man Loong’s agents and their customers.

 

As of September 30, 2015 and for the six months then ended, Man Loong’s commission receivables decreased from $118,298 at March 31, 2015 to $40,510 at September 30, 2015, a decrease of $77,788 or 65.8%. Commissions receivable represent commissions to be collected from agents for their customers’ trades executed across Man Loong’s electronic trade platform and telephone transaction system. Commissions receivable are typically remitted to Man Loong within 30 days of trade execution. We have not historically incurred credit losses on these commissions receivable, and we continue working with our agents to improve the payment times of commissions accrued but unpaid at the end of each month. As of September 30, and March 31, 2015, we had no reserve for credit losses nor had we incurred any bad debts for the three and six months ended September 30, 2015 and 2014.

 

As of September 30, 2015 and for the six months then ended, Man Loong’s deposits and prepaid expenses increased from $275,922 at March 31, 2015 to $485,433 at September 30, 2015, an increase of $209,511 or 75.9%. Deposits and prepaid expenses .consist primarily of prepaid rent and occupancy expenses on Man Loong’s principal offices in Hong Kong. On September 15, 2015, Man Loong entered into a lease agreement on new office space to replace its existing offices which required Man Loong to pay an additional deposit. When Man Loong occupies the new offices, the rent and occupancy deposits related to the former offices of approximately $275,922 will be refunded to Man Loong.

 

No dividends were declared or paid in the six months ended September 30, 2015 and 2014 and none are expected to be paid for the foreseeable future.

   

Commitments

 

eBullion is committed to paying a monthly fee of approximately $3,868 until March 31, 2017 to, True Technology Limited for hosting services and use of the trading platform that is the cornerstone of its business.  True Technology is a company owned by Messrs. Choi and Wong, Man Loong’s CEO and a director, respectively. Additionally, in December 2012, Man Loong entered into a lease for its principal office space, which lease expires in December 2015 and requires monthly payments of approximately $47,236. In September 2015, Man Loong entered into a lease for replacement office space which requires monthly payments of approximately $27,209, a decrease of $20,027 per month. The new lease expires in October 2018.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies.

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

a)  Evaluation of disclosure controls and procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are ineffective as of September 30, 2015 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Subject to receipt of additional financing or revenue generated from operations, the Company intends to retain additional individuals to remedy the ineffective controls.

 

(b)   Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION 

 

ITEM 1.

LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A.

RISK FACTORS.

 

The following information updates, and should be read in conjunction with, information disclosed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2015 which was filed with the Securities and Exchange Commission on June 26, 2015. There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended March 31, 2015 other than as set forth below:

 

RISKS RELATED TO OUR BUSINESS

 

Our revenue is dependent upon Man Loong’s ability to attract and retain the agents with whom its customers have accounts.

 

Our revenue is dependent upon Man Loong’s ability to retain and attract agents.  Man Loong’s customer base is primarily comprised of agents who have been retained by individual customers who trade in gold and silver price contracts. Although Man Loong offers products and tailored services designed to educate, support and retain its agents, its efforts to attract new agents, and those agents’ ability to attract new customers or reduce the attrition rate of its existing agents and their customers may not be successful. If Man Loong is unable to maintain or increase its agent retention rates or generate a substantial number of new agents in a cost-effective manner, its business, financial condition and results of operations and cash flows would likely be adversely affected.   The number of agents remained constant during the three and six months ended September 30, 2015 compared to the three and six months ended September 30, 2014, however for the three months ended September 30, 2015, the number of agent customers decreased by 2, and those 2 customers historically accounted for more than 10% of commission revenue. For the three and six months ended September 30, 2015, revenues decreased by $495,194 or 61.6%, and $669,669 or 44.3%, respectively, as compared to the three and months ended September 30, 2014. Although Man Loong has spent significant financial resources on support services for agents and their customers, and marketing and related expenses and plans to continue to do so, these efforts may not be cost-effective at attracting new agents and customers. In particular, we believe that costs for customer support services and rates for desirable advertising and marketing placements, including online, search engine, print and television advertising, are likely to increase in the foreseeable future, and Man Loong may be disadvantaged relative to its larger competitors in its ability to expand or maintain its customer support capabilities, and advertising and marketing commitments.

 

 

Man Loong currently has 3 agents in Hong Kong which cover three main geographic areas, including Hong Kong Island, Kowloon and the New Territories.  In mainland China, Man Loong has 10 agents located in Shanghai and Guangdong and Fujian provinces.  Each of Man Loong’s agents in Hong Kong have between 100 – 150 customers and its agents in China each have between 100 and 600 customers.

 

If Man Loong were to fail to comply with the requirements of the CGSE, Man Loong could lose its ability to process client trades, which would have an adverse material effect on our revenues, financial condition and cash flows.

 

Man Loong must comply with the minimum working capital and other requirements of the CGSE to continue our present business operations as an officially designated electronics trading member of the CGSE, a self-regulatory organization registered in Hong Kong.  If we were to fall out of compliance with the CGSE’s requirements for its members, Man Loong could lose its ability to facilitate any trades of gold or silver for customers of its agents, and potentially lose its membership in the CGSE, all of which would have an adverse material effect on our revenues, financial condition and cash flows. The constitution of the CGSE requires its members to have a minimum working capital, defined as cash plus precious metals, of approximately $193,000 and minimum assets of $643,000. The CGSE also requires its members to submit a quarterly liquidity capital report, in order to ensure that the bank balances exceed or equal the balance of customer deposits, as well as comply with a code of conduct which is established by CGSE. As of September 30 and March 31, 2015, Man Loong had $1.45 million and $2.51 million in cash, respectively, and $2.99 million and $3.18 million, respectively, in total assets, respectively.  We were in compliance with these requirements as of September 30 and March 31, 2015.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

There have been no recent sales of unregistered securities.

 

PURCHASE OF EQUITY SECURITIES

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5.

OTHER INFORMATION.

 

None.

 

ITEM 6.

EXHIBITS.

 

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

 

 

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.

 

	EBULLION, INC.
Date: November 16, 2015	By:	/s/ KEE YUEN CHOI
		Kee Yuen Choi
		President and Chief Executive Officer
		(Principal executive officer)
Date: November 16, 2015	By:	/s/ CHUI CHUI LI
		Chui Chui Li
		Chief Financial Officer
		(Principal financial and accounting officer)

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
10.1		Lease Agreement dated September 15, 2015
31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document†
101.SCH*		XBRL Taxonomy Extension Schema Document†
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document†
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document†
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document†

 

*	Filed herewith.

 

 

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