Attached files
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EX-32.2 - EFT Holdings, Inc. | v166685_ex32-2.htm |
EX-31.2 - EFT Holdings, Inc. | v166685_ex31-2.htm |
EX-31.1 - EFT Holdings, Inc. | v166685_ex31-1.htm |
EX-32.1 - EFT Holdings, Inc. | v166685_ex32-1.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30, 2009
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from
Commission
File No. 001-34222
EFT BIOTECH HOLDINGS,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other Jurisdiction of
Incorporation
or Organization)
|
22-1211204
(I.R.S.
Employer
Identification
No.)
|
929
Radecki Court
City of Industry,
CA
|
91748
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Issuer's Telephone
Number: (626) 581 - 0388
With
Copies to:
Virginia
K Sourlis, Esq.
The
Sourlis Law Firm
2
Bridge Avenue
The
Galleria
Red
Bank, New Jersey 07701
Telephone:
(732) 530-9007
N/A
(Former
name, former address and former
fiscal
year, if changed since last report)
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 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.
x Yes
o 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).
o
Yes o 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,”
"non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated filer o |
Non-accelerated
filer o
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes x No
State the number of shares
outstanding of each of the issuer's classes of common equity, as of the last
practicable date: As of November 16, 2009, there were
75,983,205 shares of common stock, par value $0.00001 per share, of the
Registrant issued and outstanding.
TABLE OF
CONTENTS
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
3-19
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
|
20-26
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
Item
4T.
|
Controls
and Procedures
|
26
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
27
|
Item
1A.
|
Risk
Factors
|
27
|
Item
2.
|
Unregistered
Sale of Equity Securities and Use of Proceeds
|
27
|
Item
3.
|
Defaults
Upon Senior Securities
|
27
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
27
|
Item
5.
|
Other
Information
|
27
|
Item
6.
|
Exhibits
|
27
|
Item
7.
|
Subsequent
Events
|
|
SIGNATURES
|
28
|
2
Item
1. Financial Statements.
EFT
BIOTECH HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
Page(s)
|
||||
Consolidated
Financial Statements
|
||||
Consolidated
Balance Sheets - unaudited
|
4 | |||
Consolidated
Statements of Operations and Other Comprehensive Income -
unaudited
|
5 | |||
Consolidated
Statements of Cash Flows - unaudited
|
6 | |||
Notes
to unaudited Consolidated Financial Statements
|
7 |
3
EFT
BIOTECH HOLDINGS, INC.
|
Consolidated
Balance Sheets
|
September
30,
2009
|
March
31,
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 36,597,902 | $ | 38,181,837 | ||||
Inventories
|
3,454,589 | 3,908,629 | ||||||
Available
for sale securities
|
694,023 | 508,746 | ||||||
Prepaid
expenses
|
977,981 | 2,551,298 | ||||||
Short-term
note receivables – related party
|
4,914,717 | 4,064,717 | ||||||
Total
current assets
|
46,639,212 | 49,215,227 | ||||||
Property
and equipment, net
|
471,174 | 360,156 | ||||||
Other
receivables
|
96,368 | 33,504 | ||||||
Investments
|
14,536,757 | 17,129,314 | ||||||
Investments
in bonds
|
4,771,924 | - | ||||||
Loan
to related party
|
1,897,000 | 1,897,000 | ||||||
Security
deposit
|
310,705 | 31,121 | ||||||
Total
assets
|
$ | 68,723,140 | $ | 68,666,322 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,232,721 | $ | 3,610,195 | ||||
Other
liabilities
|
8,385,605 | 6,675,552 | ||||||
Unearned
revenues
|
1,064,385 | 1,991,215 | ||||||
Income
tax payable
|
- | - | ||||||
Total
current liabilities
|
10,682,711 | 12,276,962 | ||||||
Stockholders'
equity
|
||||||||
Preferred
stock, $.001 par value, 25,000,000 shares authorized,
|
||||||||
none
issued and outstanding
|
- | - | ||||||
Common
stock, $0.00001 par value, 4,975,000,000 authorized,
|
||||||||
75,983,205
and 75,983,205 shares issued and outstanding
|
||||||||
at
September 30, 2009 and March 31, 2009, respectively
|
760 | 760 | ||||||
Additional
paid in capital
|
52,854,891 | 52,854,891 | ||||||
Retained
earnings
|
5,489,784 | 4,023,992 | ||||||
Accumulated
other comprehensive loss
|
(305,006 | ) | (490,283 | ) | ||||
Total
stockholders' equity
|
58,040,429 | 56,389,360 | ||||||
Total
liabilities and stockholders' equity
|
$ | 68,723,140 | $ | 68,666,322 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
EFT
BIOTECH HOLDINGS, INC.
Consolidated
Statements of Operations and Other Comprehensive Income
(Unaudited)
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
September
30,
2009
|
September
30,
2008
|
September
30,
2009
|
September
30,
2008
|
|||||||||||||
Sales
revenues, net
|
$ | 5,125,444 | $ | 4,668,808 | $ | 9,114,760 | $ | 9,420,326 | ||||||||
Shipping
charge
|
995,490 | 1,329,240 | 2,049,570 | 2,829,110 | ||||||||||||
6,120,934 | 5,998,048 | 11,164,330 | 12,249,436 | |||||||||||||
Cost
of goods sold
|
1,365,484 | 1,678,941 | 2,325,932 | 3,311,782 | ||||||||||||
Shipping
cost
|
286,468 | 728,537 | 588,368 | 1,465,441 | ||||||||||||
1,651,952 | 2,407,478 | 2,914,300 | 4,777,223 | |||||||||||||
Gross
profit
|
4,468,982 | 3,590,570 | 8,250,030 | 7,472,213 | ||||||||||||
Selling,
general and administrative expenses
|
2,253,548 | 1,083,343 | 4,559,866 | 2,329,916 | ||||||||||||
Net
operating income
|
2,215,434 | 2,507,227 | 3,690,164 | 5,142,297 | ||||||||||||
Other
income (expense)
|
||||||||||||||||
Interest
income
|
134,462 | 355,744 | 299,394 | 772,120 | ||||||||||||
Investment
income
|
- | 7,088 | - | 7,088 | ||||||||||||
Investment
loss - 48.81% Excalibur
|
- | (1,080,969 | ) | |||||||||||||
Subsidiary
loss on equity method investment
|
(514,854 | ) | - | (1,511,588 | ) | - | ||||||||||
Foreign
exchange gain (loss)
|
(5,038 | ) | 854 | (4,152 | ) | 355 | ||||||||||
Other,
net
|
43,711 | (3,774 | ) | 72,943 | (140 | ) | ||||||||||
Total
other income
|
(341,719 | ) | 359,912 | (2,224,372 | ) | 779,423 | ||||||||||
Net
income before income taxes
|
1,873,715 | 2,867,139 | 1,465,792 | 5,921,720 | ||||||||||||
Provision
for Income taxes
|
- | 94,800 | - | 184,800 | ||||||||||||
Net
income
|
$ | 1,873,715 | $ | 2,772,339 | $ | 1,465,792 | $ | 5,736,920 | ||||||||
Unrealized
gain (loss) on investments
|
75,129 | (11,605 | ) | 185,277 | (121,091 | ) | ||||||||||
Comprehensive
income
|
$ | 1,948,844 | $ | 2,760,734 | $ | 1,651,069 | $ | 5,615,829 | ||||||||
Net
income per common share
|
||||||||||||||||
Basic
and diluted
|
$ | 0.02 | $ | 0.05 | $ | 0.02 | $ | 0.09 | ||||||||
Weighted
average common shares outstanding basic and diluted
|
75,983,205 | 61,083,953 | 75,983,205 | 61,083,953 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
EFT
BIOTECH HOLDINGS, INC.
|
|||
Consolidated
Statements of Cash Flows
(unaudited)
|
Six
Months Ended
|
||||||||
September
30,
2009
|
September
30,
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 1,465,792 | $ | 5,736,920 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Depreciation
and amortization
|
33,197 | 24,117 | ||||||
Investment
loss
|
1,080,969 | - | ||||||
Subsidiary
loss on equity method investment
|
1,511,588 | - | ||||||
Warranty
liability
|
(11,655 | ) | (42,696 | ) | ||||
Stock
based compensation
|
- | 120 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Inventories
|
454,040 | (2,620,264 | ) | |||||
Prepaid
expenses and other current assets
|
1,293,733 | 531,521 | ||||||
Other
receivables
|
(62,864 | ) | - | |||||
Accounts
payable and accrued liabilities
|
(2,377,474 | ) | (213,954 | ) | ||||
Other
liabilities
|
1,721,708 | (9,151,696 | ) | |||||
Unearned
revenues
|
(926,830 | ) | (3,747,070 | ) | ||||
Income
tax payable
|
- | 184,000 | ||||||
Net
cash provided by (used in) operating activities
|
4,182,204 | (9,299,002 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Additions
to fixed assets
|
(144,215 | ) | (57,787 | ) | ||||
Note
receivables – related party
|
(850,000 | ) | (22,760,000 | ) | ||||
Purchase
of bonds
|
(4,771,924 | ) | - | |||||
Net
cash (used in) investing activities
|
(5,766,139 | ) | (22,817,787 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Restricted
cash
|
- | 37,845,432 | ||||||
Proceeds
from issuance of stock and warrants
|
- | 14,434,296 | ||||||
Net
cash provided by (used in) financing activities
|
- | 52,279,728 | ||||||
Net
increase (decrease) in cash
|
(1,583,935 | ) | 20,162,939 | |||||
Cash,
beginning of period
|
38,181,837 | 15,165,620 | ||||||
Cash,
end of period
|
$ | 36,597,902 | $ | 35,328,559 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Interest
paid in cash
|
$ | - | $ | - | ||||
Income
taxes paid in cash
|
$ | - | $ | 800 | ||||
Non-cash
investing and financing activities:
|
||||||||
Unrealized
loss on available for sale securities
|
$ | 185,277 | $ | 121,091 | ||||
Fixed
assets sold with receivable
|
$ | 33,504 | $ | - |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - ORGANIZATION
EFT
Biotech Holdings, Inc. (“EFT Holdings” or “the Company”), formerly HumWare Media
Corporation, GRG, Inc., Ghiglieri Corporation, Karat Productions, Inc., was
incorporated in the State of Nevada on March 19, 1992.
On
November 18, 2007, the Company issued an aggregate of 53,300,000 shares of its
common stock in connection with a share exchange with the stockholders of EFT
BioTech, Inc. (“EFT BioTech”), a Nevada Corporation formed on September 18, 2007
(the “Transaction”), pursuant to which EFT BioTech became a wholly-owned
subsidiary of the Company. The 53,300,000 common shares issued included
52,099,000 to pre-capitalization shareholders and 1,201,000 to four directors
and officers of EFT BioTech, and represented approximately 87.34% of the
Company’s common stock outstanding after the Transaction. Consequently, the
stockholders of EFT BioTech, Inc. own a majority of the Company's common stock
immediately following the Transaction, therefore, the Transaction is being
accounted for as a "reverse acquisition", and EFT BioTech is deemed to be the
accounting acquirer in the reverse acquisition. As EFT Holdings was a
non-operating public shell corporation that acquired an operating company, this
Transaction is treated as a capital transaction where the acquiring corporation
issued stock for the net monetary assets of the shell corporation, accompanied
by a recapitalization. The accounting is similar in form to a reverse
acquisition, except that goodwill or other intangibles are not
recorded. All references to EFT BioTech common stock have been
restated to reflect the equivalent numbers of EFT Holdings common
shares.
At its
formation on September 18, 2007, EFT BioTech acquired EFT Limited, a British
Virgin Islands company (“BVI”) formed on August 22, 2007, pursuant to which EFT
Limited (BVI) became a wholly-owned subsidiary of EFT BioTech. Since
both EFT BioTech and EFT Limited (BVI) were under common control, this
acquisition represents a reorganization of entities under common
control.
EFT
Limited (BVI) has four wholly-owned subsidiaries: EFT, Inc., a California
company formed on January 1, 2003, Top Capital International, Ltd. (BVI), a BVI
company formed on May 22, 2002, EFT (HK), Ltd., a Hong Kong (“HK”) company
formed on November 1, 2006 and EFT International Ltd. (BVI), a BVI company
formed on April 20, 2005, which it acquired all on November 14,
2007. As EFT Limited (BVI) and the four companies being acquired were
under common control, this acquisition also represents a reorganization of
entities under common control.
These
reorganizations of entities under common control resulted in changes in the
legal organization of these predecessors to EFT BioTech but did not result in
changes in the reporting entity.
On
October 20, 2008, EFT Investment Co., Ltd., a Taiwan company, was formed as a
wholly-owned subsidiary of EFT Biotech Holding, Inc.
The
Company, through its subsidiaries, is engaged in the E-Business designed around
the concept of Business-to-customer using the World Wide Web as its “storefront”
and business platform to market, sell and distribute 49 American brand products
consisting of 26 nutritional products, 20 personal care products, 1 automotive
fuel additives, 1 home product and a portable drinking container.
Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
1.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions for Form 10-Q and Article 210.8-03 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments
are of a normal recurring nature. Operating results for the six month
period ended September 30, 2009, are not necessarily indicative of the results
that may be expected for the fiscal year ending March 31, 2010. For
further information refer to the consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
March 31, 2009.
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
Foreign
Currency
The
Company’s reporting currency is the U.S. dollar. The Company’s operation in Hong
Kong uses Hong Kong dollar (HKD) as its functional currency. The financial
statements of the subsidiary are translated into U.S. Dollars (USD) in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52
(Accounting Standards Codification or “ASC” Topic 830), Foreign Currency
Translation. According to the Statement, all assets and liabilities were
translated at the year end current exchange rate, stockholders equity items are
translated at the historical rates and income statement items are translated at
the average exchange rate for the periodyear. The resulting translation
adjustments are reported under other comprehensive income in accordance with
SFAS No. 130 (ASC Topic 220), Reporting Comprehensive Income as a Component of
Stockholders Equity. Foreign exchange transaction gains and losses are reflected
in the income statement. During the years 2009 and 2008 there have
been immaterial currency fluctuations between HKD and USD.
7
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash
Equivalents
Cash and
cash equivalents include cash on hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less. The Company maintains its accounts in banks, several of which
exceed the federally insured limit. In aggregate, approximately $31.8 million
were above the federally insured limit. Management believes the Company is not
exposed to any significant credit risk on those accounts.
Available for sale
securities
The
Company’s investments in publicly traded equity securities are classified as
available-for-sale and are reported at fair value (based on quoted prices and
market prices) using the specific identification method. Unrealized gains and
losses, net of taxes, are reported as a component of stockholders’ equity.
Realized gains and losses on investments are included in investment and other
income, net when realized. Any impairment loss to reduce an investment’s
carrying amount to its fair market value is recognized in income when a decline
in the fair market value of an individual security below its cost or carrying
value is determined to be other than temporary.
Inventories
Inventories
are valued at the lower of cost (determined on a first-in, first-out basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to market value, if
lower. Inventory consists of high tech nutritional,
cosmetic, automotive maintenance and environmentally safe products.
Property and
equipment
Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of:
Machinery
& equipment
|
3
years
|
Computers
& office equipment
|
3
years
|
Automobile
|
5
years
|
For the
Six Months ended September 30, 2009 and 2008, depreciation expenses were $33,197
and $24,117, respectively.
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144 (ASC Topic 360), Accounting for the Impairment or Disposal of Long-Lived
Assets (ASC Topic 360), which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets and supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30 (ASC Topic 225), Reporting the Results of Operations for a Disposal of a
Segment of a Business. The Company periodically evaluates the carrying value of
long-lived assets to be held and used in accordance with SFAS No. 144 (ASC Topic
360). SFAS No. 144 (ASC Topic 360) requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset’s carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value
of the long-lived assets. Loss on long-lived assets to be disposed of is
determined in a similar manner, except that fair market values are reduced for
the cost of disposal. Based on its review, the Company believes that, as of
September 30, 2009 there were no significant impairments of its long-lived
assets.
Fair Value of Financial
Instruments
Statement
of Financial Accounting Standards No. 107 (ASC Topic 825), “Disclosures about
Fair Value of Financial Instruments”, requires that the Company discloses
estimated fair values of financial instruments. The carrying amounts reported in
the statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimate of fair value due
to the short-term maturity of these instruments.
Fair Value
Measurements
Effective
April 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”)
Statement of Financial Accounting Standards No. 157 (ASC Topic 820), “Fair Value Measurements”,
which defines fair value, establishes guidelines for measuring fair value and
expands disclosures regarding fair value measurements. SFAS No. 157 (ASC Topic
820) does not require any new fair value measurements, but rather eliminates
inconsistencies in guidance found in various other accounting pronouncements.
The adoption of SFAS No. 157 (ASC Topic 820) did not have a material effect on
the Company’s financial condition or operating results.
Refer to
Note 4, “Fair Value Measurements” for additional information on the adoption of
SFAS No. 157 (ASC Topic 820).
8
Stock-Based
Compensation
In
December 2004, the FASB issued FASB Statement No. 123R (ASC Topic 718),
"Share-Based Payment, an Amendment of FASB Statement No. 123 (ASC Topic 718).
SFAS 123R (ASC Topic 718) requires companies to recognize in the statement of
operations the grant date fair value of stock options and other equity-based
compensation issued to employees. The Company adopted SFAS 123R (ASC Topic 718)
on April 1, 2006.
Stocks issued to officers or
employees
On
November 18, 2007 in conjunction with the reverse acquisition, the Company
granted its officers an aggregate 1,201,000 shares of fully vested stock with no
future requisite service requirement. The share compensation cost is measured at
grant date, based on estimated fair value of the award which is $0.0018 per
share.
The
amount of compensation was included as a period compensation
expense. For the Six Months ended September 30, 2009 and 2008, the
stock-based compensation for shares awarded were to employees was $0 and $120,
respectively.
During
the years 2009 and 2008, the Company has not issued any stock options or
warrants to employees nor is there any outstanding warrants or options during
the Six Months ended September 30, 2009, therefore pro forma disclosures are not
required.
Stock issued for
service
The
company accounts for equity instruments issued in exchange for the receipts of
goods or service from other than employees in accordance with SFAS No. 123R (ASC
Topic 718) and the conclusions reached by the Emerging Issues Task Force
(“EITF”) in Issue No. 96-18 (ASC Topic 505). Costs are measured at
the estimated fair market value of the consideration received or the estimated
fair value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration
other than employee services is determined on the earliest of performance
commitment or completion of performance by the provider of goods or service as
defined by EITF 96-18 (ASC Topic 505).
During
November 2008, we issued 4,084 shares of common stock in exchange of service we
received. For the Six Months ended September 30, 2009 and 2008, the
stock-based compensation for shares issued to non-employees was $0 and $120,
respectively.
Revenue
Recognition
The
Company’s revenue recognition policy is in accordance with the requirements of
Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition,
(“SAB 104”), EITF 01-09 (ASC Topic 605), Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
(ASC Topic 605) and other applicable revenue recognition guidance and
interpretations. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. Cash consideration given by the Company to its sales
affiliates is considered to be a reduction of the selling prices of the
Company's products, thus, is recorded as a reduction of revenue.
EFT has
developed its own reverse auction program, a proprietary software program, for
the purposes of increasing revenues by attracting new members to join EFT’s
affiliate program. In a reverse auction the objective is to bid the price of a
product down within a predetermined time frame unlike an ordinary auction (also
known as a forward auction) where bidders bid the price up and the highest
bidder wins the right to buy the product at the conclusion of
bidding. The reverse auction program was beta-tested and introduced
to all affiliates in June 2009. The sales revenue from the reverse
auction program is recognized when bidders consumed 300 bids. (Every bid
consumes $1.) The reverse auction program generated $945,400 sales revenue as of
September 30, 2009.
Warranty
The
Company generally does not provide customers with right of return except for
defective products which is within six month warranty period from date of
sales. Historically, the company warranty provisions have not been
material. The specific warranty terms and conditions vary depending upon the
product sold, but generally include replacement over a period of six months.
Factors that affect the Company’s warranty liability include the number of
products currently under warranty, historical and anticipated rates of warranty
claims on those products, and cost per claim to satisfy the warranty obligation.
The anticipated rate of warranty claims is the primary factor impacting the
estimated warranty obligation. Warranty claims are relatively predictable based
on our historical experience. Warranty reserves are included in other
liabilities and the provision for warranty accruals is included in cost of goods
sold in the consolidated statement of Operations and Other Comprehensive Income.
Management reviews the adequacy of warranty reserves each reporting period based
on historical experience and management's estimate of the costs to remediate the
claims and adjusts the provisions accordingly.
Currently,
the Company estimates its warranty expense as follows:
Products
sold for
|
|
0-2
months
|
2%
of cost
|
3-4
months
|
1.5%
of cost
|
5-6
months
|
1%
of cost
|
9
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. The specific warranty terms and
conditions vary depending upon the product sold, but generally include
replacement over a period of six months. Factors that affect the Company’s
warranty liability include the number of products currently under warranty,
historical and anticipated rates of warranty claims on those products, and cost
per claim to satisfy the warranty obligation. The anticipated rate of warranty
claims is the primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the warranty period is
only six months and replacement is generally already in stock or available at a
pre-determined price. Warranty claims are relatively predictable based on
historical experience of failure rates. If actual results differ from the
estimates, the Company revises its estimated warranty liability.
Shipping
Costs
The
Company’s shipping costs are included in cost of sales in the accompanying
Consolidated Statements of Operations and Other Comprehensive Income for all
periods presented.
Unearned
Revenues
Unearned
Revenues consist of cash amounts received in advance for goods and services to
be delivered at a future date. The Registrant records the cash from customers as
a liability until the products are delivered.
Advertising
Advertising
expenses consist primarily of costs of promotion for corporate image and product
marketing and costs of direct advertising. The Company expenses all advertising
costs as incurred. For the Six Months ended September 30, 2009 and 2008,
advertising expenses were $21,987 and $85,871, respectively.
Consultant
Fee
On
January 1, 2009, EFT International Ltd, a wholly-owned subsidiary of EFT BioTech
Holdings, Inc., entered a contract with ZR Public Relation Consultant Ltd. (the
Consultant), which provides public relation consulting services in Asia.
In consideration of the services rendered by the Consultant, EFT International
Ltd agrees to pay 5% of total commission payout for each fiscal year. For
the six months ended September 30, 2009, consultant expense for EFT
International Ltd was $570,562.
Income
Taxes
The
Company utilizes SFAS No. 109 (ASC Topic 740), Accounting for 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 adopted the provisions of FASB Interpretation No. 48 (ASC Topic 740),
Accounting for Uncertainty in Income Taxes (“ASC Topic 740”), on April 1, 2007
The Interpretation addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48 (ASC Topic 740), we may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. FIN 48 (ASC Topic 740) also provides guidance
on derecognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures.
Earnings Per
Share
Basic net
income per share is computed on the basis of the weighted average number of
common shares outstanding during the period.
Diluted
net income per share is computed on the basis of the weighted average number of
common shares and common share equivalents outstanding. Dilutive securities
having an anti-dilutive effect on diluted net income per share are excluded from
the calculation.
Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
10
The
following table shows the weighted-average number of potentially dilutive shares
excluded from the diluted net income per share calculation for the three and six
months ended September 30, 2009 and 2008:
For
the three
|
For
the three
|
For
the six
|
For
the six
|
|||||||||||||
months
ended
|
months
ended
|
months
ended
|
months
ended
|
|||||||||||||
September
30,
2009
|
September
30,
2008
|
September
30,
2009
|
September
30,
2008
|
|||||||||||||
Weighted
average
|
||||||||||||||||
warrants
outstanding
|
14,890,040 | - | 14,890,040 | - | ||||||||||||
Total
|
14,890,040 | - | 14,890,040 | - |
For
the Three Months Ended
|
For
the Six Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Historical
Numerator:
|
||||||||||||||||
Net
Income
|
$ | 1,873,715 | $ | 2,772,339 | $ | 1,465,792 | $ | 5,736,920 | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average
shares used for basic net income per share
|
75,983,205 | 61,083,953 | 75,983,205 | 61,083,953 | ||||||||||||
Effect
of common stock equivalents
|
-
|
-
|
-
|
-
|
||||||||||||
Weighted-average
shares used for diluted net (loss) per share
|
75,983,205 | 61,083,953 | 75,983,205 | 61,083,953 | ||||||||||||
Basic
and diluted net income per share
|
$ | 0.02 | $ | 0.05 | $ | 0.02 | $ | 0.09 | ||||||||
Diluted
net income per share
|
$ | 0.02 | $ | 0.05 | $ | 0.02 | $ | 0.09 |
Comprehensive
income
Comprehensive
income is defined as the change in equity of a company during a period from
transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. For the Company,
comprehensive income for the periods presented is comprised of net income and
unrealized loss on marketable securities classified as
available-for-sale.
Concentration of Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions, but several of its bank accounts exceed
the federally insured limit. The Company’s accounts receivable is constantly at
a marginal to zero dollar ($0) level and its revenues are derived from orders
place by consumers located anywhere in the world over the Company’s designated
internet portal. The Company maintains a zero dollar ($0) allowance for doubtful
accounts and authorizes credits based upon its historical “sound and quality”
after sales customer services provided to affiliates and customers.
Historically, such customer services have been maintained in accordance with the
management expectations. The Company routinely assesses the credits authorized
to its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
Segment
Reporting
Statement
of Financial Accounting Standards No. 131(ASC Topic 280), “Disclosure about
Segments of an Enterprise and Related Information” requires use of the
management approach model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
Since management does not disaggregate Company data, the Company has determined
that only one segment exists. Accordingly, no segment reporting is
provided.
11
Recent accounting
pronouncements
In June 2009 the FASB
established the Accounting Standards Codification ("Codification" or "ASC") as
the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in accordance with generally accepted accounting principles in the United States
("GAAP"). Rules and interpretive releases of the Securities and Exchange
Commission ("SEC") issued under authority of federal securities laws are also
sources of GAAP for SEC registrants. Existing GAAP was not intended to be
changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855),
"Subsequent Events", SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC
Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC
Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB Statement No.
162" were recently issued. SFAS No. 165, 166, 167, and 168 have no current
applicability to the Company or their effect on the financial statements would
not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current
applicability
to the Company or their effect on the financial statements would not have been
significant.
Note
3 - FINANCIAL
INSTRUMENTS
The
following table summarizes unrealized gains and losses related to the Company’s
investments in marketable securities designated as available-for-sale. The fair
value of available for sale securities has been estimated based on quoted market
prices, which the Company currently believes are indicative of fair value. The
Company’s available for sale securities are mainly on equity securities mutual
funds.
September
30, 2009
|
September
30, 2008
|
|||||||||||||||||||||||
Fair
Value
|
Cost
|
Unrealized
(Loss)
|
Fair
Value
|
Cost
|
Unrealized
(Loss)
|
|||||||||||||||||||
Available
for sale securities
|
$ | 694,023 | $ | 999,029 | $ | (305,006 | ) | $ | 714,874 | $ | 999,029 | $ | (284,155 | ) | ||||||||||
Total
|
$ | 694,023 | $ | 999,029 | $ | (305,006 | ) | $ | 714,874 | $ | 999,029 | $ | (284,155 | ) |
Note
4 - FAIR VALUE
MEASUREMENTS
On April
1, 2008, the Company adopted the effective portions of SFAS 157 (ASC Topic
820). In February 2008 the FASB issued FSP FAS 157-2(ASC Topic 820),
“Effective Date of FASB Statement No. 157(ASC Topic 820)”, which
provides a one year deferral of the effective date of SFAS No. 157
(ASC Topic 820) for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). Therefore, the Company adopted the
provisions of SFAS 157 (ASC Topic 820) with respect to only financial
assets and liabilities.
SFAS 157(ASC
Topic 820) defines fair value, establishes a framework for measuring fair value
and enhances disclosure requirements for fair value measurements. This statement
does not require any new fair value measurements. SFAS 157 (ASC Topic 820)
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability. As a basis for considering such assumptions,
SFAS 157(ASC Topic 820) establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair
value:
Level 1—Observable
inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2—Include other
inputs that are directly or indirectly observable in the
marketplace.
Level 3—Unobservable
inputs which are supported by little or no market activity.
The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.
In
accordance with SFAS 157(ASC Topic 820), the Company measures its available for
sale securities at fair value. The available for sale securities are classified
within Level 1. This is because the available for sale securities are valued
using quoted market prices.
12
Assets
and liabilities measured at fair value are summarized below.
September
30, 2009
|
||||||||||||||||
|
|
Level
1
Quoted
Prices
in
Active
Markets
for
Identical
Assets
|
|
|
Level
2
Significant
Other
Observable
Inputs
|
|
|
Level
3
Significant
Unobservable
Inputs
|
|
|
Total
|
|
||||
Available
for sale securities
|
$
|
694,023
|
$
|
-
|
$
|
-
|
$
|
694,023
|
||||||||
Total
assets measured at fair value
|
$
|
694,023
|
$
|
-
|
$
|
-
|
$
|
694,023
|
Note
5 - NOTE RECEIVABLES,
RELATED PARTY
Short-Term
On June
30, 2008, the Company signed a loan agreement denominated in U.S. dollars with
Excalibur International Marine Corporation (“Excalibur”) to lend $19,193,000 at
no interest with a term of five month. On November 14, 2008, the
Company has received $17,628,283 from Excalibur. At the end of the five month
term, the term of the loan was extended for another nine months. This loan still
has an outstanding balance of $1,564,717 at quarter end of September 30,
2009.
On
September 23, 2008, the Company signed a loan agreement denominated in U.S.
dollars with Excalibur International Marine Corporation (“Excalibur”) to lend
$2,000,000 at interest rate of 3.75% per month with a term of no more than 60
days. At the end of the 60-day term, the term of the loan was
extended for six months. On May 25, 2009, the Company extended this loan to
Excalibur for another six months and lowered the interest rate to 12.5% per
annum.
On
November 24, 2008, the Company signed another loan agreement denominated in U.S.
dollars with Excalibur to lend $500,000 at interest rate of 3.75% per month with
a term of no more than 30 days. At the end of the 30-day term, the
term of the loan was extended for six months. On May 25, 2009, the Company
extended this loan to Excalibur for another six months and lowered the interest
rate to 12.5% per annum.
On May
13, 2009, the Company signed another loan agreement denominated in U.S. dollars
with Excalibur to lend $600,000 at interest rate of 12.5% per annum with a term
of six months.
On August
17, 2009, the Company signed another loan agreement denominated in U.S. dollars
with Excalibur to lend $250,000 at interest rate of 12.5% per annum with a term
of six months.
Long-Term
The Board
of Directors approved two non-interest bearing unsecured demand loans in the
amount of U.S. $330,000 and $1,567,000 respectively on July 11 and July 25 to
Yeuh-Chi Liu, a vendor and a member of the board of directors of
Excalibur. The loan amount of $1,567,000 is collateralized with 3.97%
ownership of Excalibur International Marine Corp. As of the date
hereof the full principal amount remains outstanding.
Note
6 – OTHER
RECEIVABLE
EFT USA,
Inc. (EFT), a wholly-owned subsidiary of EFT BioTech Holdings, Inc., sold
certain business properties, including computers and an auto to Industrial
Fulfillment Co. (IFC) in the amount of $33,504, its net book value as other
receivable, pursuant to an asset purchase agreement. The sale of the
assets under this agreement constitutes a complete transfer of all of its
rights, title and interest with respect to the assets.
Note
7 – PROPERTY AND
EQUIPMENT
Property
and equipment consist of the following:
September
30,
2009
|
March
31,
2009
|
|||||||
Automobile
|
$ | 154,724 | $ | 154,724 | ||||
Furniture
and fixture
|
60,868 | 12,278 | ||||||
Computer
equipment
|
52,594 | 26,373 | ||||||
Machinery
and equipment
|
41,611 | 6,405 | ||||||
Leasehold
improvement
|
296,878 | 262,679 | ||||||
606,675 | 462,459 | |||||||
Less:
Accumulated depreciation
|
(135,501 | ) | (102,303 | ) | ||||
$ | 471,174 | $ | 360,156 |
13
Note
8 – INVESTMENT
On
October 25, 2008, the Company through its wholly-owned subsidiary, EFT
Investment Co. Ltd, a Taiwan company formed on October 20 2008, completed the
acquisition of 48.81% of equity interest of Excalibur for approximately
$19,193,000. The equity method has been used for this investment. The
Company’s investment in Excalibur was $14,536,757 due to Excalibur has
$2,592,557 net loss for the six months and writes off for the premium the
Company paid when it purchased the investment.
Investment
consists of:
September
30,
|
March
31,
|
|||||||||||
2009
|
2009
|
|||||||||||
48.81%
equity interest (a)
|
$ | 14,536,757 | $ | 17,129,314 | ||||||||
$ | 14,536,757 | $ | 17,129,314 |
(a) On
October 20, 2008, EFT Investment Co., Ltd. was formed as a
wholly-owned subsidiary of EFT BioTech Holdings, Inc. EFT
Investment Co., Ltd was formed in Taiwan. On October 25, 2008, EFT Investment
Co., Ltd. completed the acquisition of 585,677,500 shares of common stock of
Excalibur; representing approximately 49% shares of issued and outstanding
shares of Excalibur, for an aggregate purchase price of USD $19,193,000. Prior
to the acquisition of Excalibur, Excalibur was not a related person under Item
404 of regulation S-K. The equity method has been used for this investment for
the six months ended September 30, 2009.
The
following table shows the summary of income statement for Excalibur
International Corp. for the three and six months ended September 30, 2009 and
2008:
Excalibur
International Marine Corp
|
||||||||||||||||
Three
Months Ended
September
30,
|
Six
Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Exchange
rate
|
33 | - | 33 | - | ||||||||||||
Revenue
|
$ | 62,598 | $ | - | $ | 66,002 | $ | - | ||||||||
Gross
profit (loss)
|
$ | (1,117,410 | ) | $ | - | $ | (3,248,239 | ) | $ | - | ||||||
Loss
from continuing operations
|
$ | (1,054,812 | ) | $ | - | $ | (3,182,237 | ) | $ | - | ||||||
Net
loss
|
$ | (1,054,812 | ) | $ | - | $ | (3,182,237 | ) | $ | - | ||||||
EFT
48.81% investment loss
|
$ | (514,854 | ) | $ | - | $ | (1,553,250 | ) | $ | - |
The
following table provides the summary of balance sheet information for Excalibur
International Marine Corp. as of September 30, 2009 and March 31,
2009:
Excalibur
International Marine Corp
|
September
30, 2009
|
March
31, 2009
|
|||||||||||||||
NT$
|
USD
|
NT$
|
USD
|
|||||||||||||
Total
assets
|
1,265,120,282
|
38,336,978
|
1,289,432,107
|
39,073,700
|
||||||||||||
Total
liabilities
|
285,120,048
|
8,640,001
|
204,417,971
|
6,194,484
|
||||||||||||
Net
assets
|
980,000,234
|
29,696,977
|
1,085,014,136
|
32,879,216
|
||||||||||||
EFT
48.81% ownership
|
478,338,115
|
14,495,095
|
529,595,400
|
16,048,345
|
||||||||||||
Ending
balance of investment account
|
14,536,757
|
17,129,314
|
||||||||||||||
Difference/Premium
|
41,662
|
(1,080,969
|
) |
14
The
difference of $41,662 was due to the exchange rate fluctuations between the
periods.
The
Company elected to perform an assessment of the carrying value of the equity
method investment of Excalibur International as of June 30, 2009. As of June 30,
2009, the Company determined the estimated fair value of its reporting unit
using a discounted cash flow model and compared the value to the carrying value
of its reporting unit. This assessment indicated that the Company's carrying
value in its investment was impaired.
The
discount rate, sales growth, profitability assumptions and perpetual growth rate
are the material assumptions utilized in the discounted cash flow model used to
estimate the fair value of its reporting unit. The amount of investment
loss (impairment) for Excalibur was $1,080,969.
According
to APB 18, para. 19(h) (ASC Topic 323), the current fair value of the equity
method investment was less than its carrying amount with indicated a loss in
value per the Company’s discounted cash flow model. The Company reports
this loss as investment loss on the Statement of Operations and Other
Comprehensive Income. The Company’s share of earnings or losses of the
investment are shown as a subsidiary loss on equity method investment per APB 18
paragraphs 18 and 19(c)(ASC Topic 323).
The
following is the shareholder’s list of Excalibur International Marine Corp as of
September 30, 2009:
Excalibur
International Marine Corp. Shareholders’
List
|
Shareholders’
Name
|
#
of shares
|
%
|
|||||||
1
|
EFT
Investment Co. Ltd
|
585,677,500
|
48.81
|
%
|
|||||
2
|
Lu,
TsoChun
|
100,000,000
|
8.33
|
%
|
|||||
3
|
Chiao,
Jen-Ho
|
82,000,000
|
6.83
|
%
|
|||||
5
|
Lin,
Ming-i
|
51,700,000
|
4.31
|
%
|
|||||
4
|
Ms.
Ku
|
50,000,000
|
4.17
|
%
|
|||||
6
|
Yeuh-Chi
Liu
|
47,660,000
|
3.97
|
%
|
|||||
7
|
Steve
Hsiao
|
46,392,500
|
3.87
|
%
|
|||||
8
|
Wen
Investment
|
40,000,000
|
3.33
|
%
|
|||||
Others
|
196,570,000
|
16.38%
|
|||||||
Total
|
1,200,000,000
|
100
|
%
|
56
individuals, none exceeds 2.5% interest in Excalibur International Marine
Corp.
Note
9 – OTHER
LIABILITIES
Other
liabilities consist of the following:
September
30, 2009
|
March
31, 2009
|
|||||||
Commission
payable
|
$ | 7,549,676 | $ | 5,977,969 | ||||
Payroll
liabilities
|
795,900 | 645,900 | ||||||
Warranty
liability
|
40,029 | 51,683 | ||||||
Other
|
- | - | ||||||
$ | 8,385,605 | $ | 6,675,552 |
Note
10 – STOCKHOLDERS’
EQUITY
Common
stock
As of
September 30, 2009 the Company has 4,975,000,000 shares of common stock
authorized and 75,983,205 shares issued and outstanding at par value $0.00001
per share.
The
Company did not issue any shares of Common Stock for the six months ended
September 30, 2009.
15
Warrants
Each
warrant underlying the unit offered in the private placement is immediately
exercisable in whole or in part and from time to time, to purchase one share of
common stock at $3.80 per share until the second anniversary date of the date of
issuance.
The
Company shall have the right, not the obligation to redeem the outstanding
warrants, on a pro rata basis, at a purchase price of $0.00001 per warrant
within thirty (30) days from the tenth (10th)
consecutive trading day that the closing sales price, or the average of the
closing bid and asked price in the event that the Company’s common stock trades
on the OTC or any public securities market within the U.S., is at least Eleven
Dollars ($11.00) per share.
As the
only settlement option for the warrants is physical settlement, in which the
party designated in the contract as the buyer delivers the full stated amount of
cash to the seller, and the seller delivers the full stated number of shares to
the buyer, the Company accounted for the warrants as permanent equity and
recorded it in additional paid in capital.
Dividend
For the
six months ended September 30, 2009 and 2008, approximately $0 and $0 million
dividends were paid to the stockholders of EFT BioTech.
Deposits from investors and
restricted cash
As of
June 30, 2008, the Company received $55,078,730 deposits related to a future
private placement of its common stock to non-resident aliens at a purchase price
of $3.80 per unit, for a unit consisting of one share of common stock and one
common stock purchase warrant. The deposits are held in an escrow account and
are refundable anytime before stock subscription agreement is executed. As of
September 30, 2009 we had not executed any of the stock subscription
agreement.
Note
11 - INCOME
TAXES
The
Company was incorporated in the United States of America (“US”) and has
operations in three tax jurisdictions - the United States of America, the Hong
Kong Special Administrative Region (“HK SAR”) and the BVI. The Company generated
substantially all of its net income from its BVI operations for the six months
ended September 30, 2009 and 2008 which are not subject to any tax provision
according to BVI tax law. The Company’s HK SAR subsidiaries had no taxable
income in the respective periods. The deferred tax assets for the Company’s US
operations and HK SAR subsidiaries were immaterial at September 30, 2009 and
2008.
The
income tax expenses consist of the following:
Six
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Current:
|
||||||||
Domestic
|
$ | - | $ | 184,800 | ||||
Foreign
|
- | - | ||||||
Deferred
|
- | - | ||||||
Income
tax expenses
|
$ | - | $ | 184,800 |
A
reconciliation of income taxes, with the amount computed by applying the
statutory federal income tax rate (37% for the six months ended September 30,
2009 and 2008) to income before income taxes for the six months ended September
30, 2009 and 2008, is as follows:
Six
Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Income
tax at U.S. statutory rate
|
$ | 545,026 | $ | 1,715,862 | ||||
State
tax
|
- | 800 | ||||||
Indefinitely
invested earnings of foreign subsidiaries
|
(550,320 | ) | (1,540,991 | ) | ||||
Nondeductible
expenses
|
5,294 | 9,129 | ||||||
$ | 0 | $ | 184,800 | |||||
Effective
tax rate
|
0 | % | 3 | % |
The
Company’s effective tax rate decreased for the six months ended September 30,
2009, compared to the same period of 2008, due to, after the re-capitalization,
a higher proportion of its operating profits is not subject to income
tax.
16
Uncertain Tax
Positions
As a
result of the implementation of Interpretation 48 (ASC Topic 740) on April 1,
2007, the Company recognized no material adjustments to liabilities or
stockholders’ equity. Interest associated with unrecognized tax benefits are
classified as income tax and penalties are classified in selling, general and
administrative expenses in the statements of operations. The adoption of FIN 48
(ASC Topic 740) did not have a material impact on the Company’s financial
statements.
For the
six months ended September 30, 2009 and 2008, the Company had no unrecognized
tax benefits and related interest and penalties expenses. Currently,
the Company is not subject to examination by major tax
jurisdictions.
Note
12 - WARRANTY
LIABILITY
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. Changes in warranty liability
for standard warranties which are included in current liabilities on the
Company’s Consolidated Balance Sheets are presented in the following
tables:
September
30, 2009
|
March
31, 2009
|
|||||||
Warranty
liability at March 31
|
$ | 51,684 | $ | 85,608 | ||||
Costs
accrued
|
(11,655 | ) | (33,924 | ) | ||||
Service
obligations honored
|
- | - | ||||||
Warranty
liability at September 30
|
$ | 40,029 | $ | 51,684 | ||||
Current
portion
|
$ | 40,029 | $ | 51,684 | ||||
Non-current
portion
|
- | - | ||||||
Warranty
liability at end of period
|
$ | 40,029 | $ | 51,684 |
Note
13 - COMMITMENT
Operating
Lease
The
Company rents office space for its sales division in Hong Kong. The
lease provides for free lease in the first two years and a monthly lease
payments approximating $50,000 USD starting the beginning of the third year and
expiring on June 30, 2012. Expensing the 5-year total rent evenly
over the life of the lease, the future minimum lease payments under the
operating lease are as follows:
Year
Ending September 30,
|
||||
2010 | $ | 180,000 | ||
2011 | 360,000 | |||
2012 | 360,000 |
The Company rents storage space for its sales division in Hong Kong. The lease provides for monthly lease payments approximating $1,135 USD starting on May 8, 2008 and expiring on May 7, 2010. Future minimum lease payments under the operating leases as of September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010 | $ | 6,810 | ||
2011 | 1,135 |
The
Company rents office space for its sales division in Korea. The lease
provides for monthly lease payments approximating $9,330 USD starting on June
25, 2009 and expires on June 24, 2011. Future minimum lease payments
under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 55,980 | ||
2011
|
111,960 | |||
2012
|
27,990 |
17
The
Company rents storage space for its sales division in Korea. The
lease provides for monthly lease payments approximating $1,134 USD starting on
June 25, 2009 and expires on June 24, 2011. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 6,804 | ||
2011
|
13,608 | |||
2012
|
3,402 |
The
Company rents office space for its sales division in Vietnam. The
lease provides for monthly lease payments approximating $2,420 USD starting on
May 9, 2009 and expires on May 9, 2011. Future minimum lease payments
under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 14,520 | ||
2011
|
29,040 | |||
2012
|
2,420 |
The
Company rents office space for its sales division in Vietnam
SaiKong. The lease provides for monthly lease payments approximating
$1,400 USD starting on August 8, 2009 and expires on August 8,
2011. Future minimum lease payments under the operating leases as of
September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 8,400 | ||
2011
|
16,800 | |||
2012
|
5,600 |
The
Company rents office space for its sales division in Thailand. The
lease provides for monthly lease payments approximating $1,860 USD starting on
April 20, 2009 and expires on February 28, 2010. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010 | $ | 9,300 |
The
Company rents office space for its division as Thailand Center. The
lease provides for monthly lease payments approximating $564 USD starting on
April 1, 2009 and expires on February 28, 2010. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 2,820 |
The
Company rents office space for its auction product purchase center in
China. The lease provides for monthly lease payments approximating
$732 USD starting on June 1, 2009 and expires on May 30, 2010. Future
minimum lease payments under the operating leases as of September 30, 2009
approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 4,392 | ||
2011
|
1,464 |
The Company rents another office space for its auction product purchase center in China. The lease provides for monthly lease payments approximating $264 USD starting on July 15, 2009 and expires on July 14, 2010. Future minimum lease payments under the operating leases as of September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 1,584 | ||
2011
|
1,056 |
18
Rent
expenses for the six months ended September 30, 2009 and September 30, 2008 were
approximately $253,226 and $244,305, respectively.
14.
Subsequent Events
The
Company has evaluated subsequent events from the balance sheet date through
November 16, 2009 with the date being the date that the financial statements are
issued or are available to be issued.
19
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking
Statements
This
Report contains statements that we believe are, or may be considered to be,
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact included in this Report regarding the prospects of our industry
or our prospects, plans, financial position or business strategy, may constitute
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking words such as “may,” “will,”
“expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,”
“plans,” “forecasts,” “continue” or “could” or the negatives of these terms or
variations of them or similar terms. Furthermore, such forward-looking
statements may be included in various filings that we make with the SEC or press
releases or oral statements made by or with the approval of one of our
authorized executive officers. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that these expectations will prove to be correct. These forward-looking
statements are subject to certain known and unknown risks and uncertainties, as
well as assumptions that could cause actual results to differ materially from
those reflected in these forward-looking statements. Readers are cautioned not
to place undue reliance on any forward-looking statements contained herein,
which reflect management’s opinions only as of the date hereof. Except as
required by law, we undertake no obligation to revise or publicly release the
results of any revision to any forward-looking statements. You are advised,
however, to consult any additional disclosures we make in our reports to the
SEC. All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained in this Report.
Industry
Trends
We
believe that the Business to Customer business is robust and that consumers have
become more confident in ordering products, like ours, over the
internet. However, the nutritional supplement and cosmetic e-business
markets have and continue to become increasingly competitive and are rapidly
evolving. Barriers to entry are minimal and current and new competitors can
launch new websites at a relatively low cost. Many competitors in this area have
greater financial, technical and marketing resources than our Company. Continued
advancement in technology and increasing access to that technology is paving the
way for growth in direct marketing. We also face competition for consumers from
retailers, duty-free retailers, specialty stores, department stores and
specialty and general merchandise catalogs, many of which have greater financial
and marketing resources than we have. Notwithstanding the foregoing, we believe
that we are well-positioned within the Asian consumer market with our current
plan of supplying American merchandise brands to consumers and that our exposure
to both the Asian and American cultures gives us a competitive
advantage. There can be no assurance that we will maintain our
competitive edge or that we will continue to provide only American made
merchandise.
However,
the global economy is currently undergoing a period of unprecedented volatility,
and the future economic environment may continue to be less favorable than that
of recent years. This has led, and could further lead, to reduced consumer
spending in the foreseeable future, and this may include spending on nutritional
and beauty products and other discretionary items, like our products. In
addition, reduced consumer spending may drive us and our competitors to decrease
prices. These conditions may adversely affect our revenues and
profits.
Our
long-term plan is to use funds from the private placement and revenues earned
for investments and acquisitions to allow us to grow our existing business
operations and to enter into additional territories. To date, we have
not located any acquisition targets nor do we have any commitments for capital
expenditures, other than Excalibur. We believe that due to the
current global economic recession, there might be material opportunities for us
to acquire smaller companies at discount prices. There can be no
assurances however that we will be successful in doing so. Our
expansion will rely to a great degree on global economic conditions and
perceived future changes. Until such time, we intend to retain our
cash reserves to fund our operations.
RESULTS
OF OPERATIONS
The
Three Months Ended September 30, 2009 Compared to the Three Months Ended
September 30, 2008
Revenues. Our
Revenues increased to $5,125,444 for the three months ended September 30, 2009
from $4,668,808 for the three months ended September 30, 2008 because of the
Company raises its unit sales price in July 2008 from $250 to $300 and the
worldwide recession. The price increase only took effect for the last two months
in the quarter ended September 30, 2008 compared the full three months ended
September 30, 2009. This increase in the initial cost might have contributed to
a decrease in sales as customers believe that such an increase is prohibitively
expensive. Our products are discretionary items and in light of the worldwide
recession, consumers have generally been decreasing their purchases of
discretionary items.
Costs of Goods
Sold. Costs of Goods Sold decreased to $1,365,484 for the
three months ended September 30, 2009 from $1,678,941 for the three months ended
September 30, 2008. Costs of Goods Sold consist of merchandise
purchases from vendors and decreased because of decreased sales in
quantities.
Shipping
Charges. Shipping Charges decreased to $995,490 for the three
months ended September 30, 2009 from $1,329,240 for the three months ended
September 30, 2008 due to decreased sales in quantities.
Shipping
Costs. Shipping Costs decreased to $286,468 for the three
months ended September 30, 2009 from $728,537 for the three months ended
September 30, 2008. Shipping Costs consist of freight charges to our
Hong Kong facility and decreased because of decreased sales in
quantities.
20
Gross
Profits. Gross Profits increased to $4,468,982 for the three months ended
September 30, 2009 from $3,590,570 for the three months ended September 30,
2008. Our gross profit percentage for the three months ended
September 30, 2009 was 73% compared to 60% for the three months ended
September 30, 2008. Gross
profits increased due to the Company raising its unit sales prices in July 2008.
The price increase only took effect for the last two months in the quarter ended
September 30, 2008 compared the full three months ended September 30,
2009.
Selling, General
and Administrative Expenses. Selling, General and
Administrative Expenses increased to $2,253,548 for the three months ended
September 30, 2009 from $1,083,343 for the three months ended September 30,
2008. Selling, General and Administrative Expenses consist of advertising of
$6,841 and corporate administrative expenses of $1,319,044, and increasing
consultant fees to ZR Public Relation Company, Ltd. of $327,663 and royalty fees
accrued for trademark of $600,000 at September 30, 2009.
Interest
Income. Interest Income decreased to $134,462 for the three
months ended September 30, 2009 from $355,744 for the three months ended
September 30, 2008. Interest Income decreased due to cash balance
decrease and interest rate decline at September 30, 2009.
Foreign Exchange
Loss. Foreign Exchange loss increased to $5,038 for the three
months ended September 30, 2009 compared to a gain of $854 for the three months
ended September 30, 2008. Foreign Exchange loss increased because of
fluctuation on foreign exchange rates.
Other Income
(Net). Other Income (Net) increased to $43,711 for the three
months ended September 30, 2009 from loss of $3,774 for the three months ended
September 30, 2008. Other Income (Net) consists of fees received for educational
training classes and increased due to additional classes held.
The
Six Months Ended September 30, 2009 Compared to the Six Months Ended September
30, 2008
Revenues. Our
Revenues decreased to $9,114,760 for the six months ended September 30, 2009
from $9,420,326 for the six months ended September 30, 2008 because of decreased
sales because of the Company raises its unit sales price in July 2008 from
$250 to $300 and the worldwide recession. The price increase only took effect
for the last two months in the six months ended September 30, 2008 compared the
full six months ended September 30, 2009. This increase in the initial cost
might have contributed to a decrease in sales as customers believe that such an
increase is prohibitively expensive. Our products are discretionary items and in
light of the worldwide recession, consumers have generally been decreasing their
purchases of discretionary items.
Costs of Goods
Sold. Costs of Goods Sold decreased to $2,325,932 for the six
months ended September 30, 2009 from $3,311,782 for the six months ended
September 30, 2008. Costs of Goods Sold consist of merchandise
purchases from vendors and decreased because of decreased sales.
Shipping
Charges. Shipping Charges decreased to $2,049,570 for the six
months ended September 30, 2009 from $2,829,110 for the six months ended
September 30, 2008 due to decreased sales.
Shipping
Costs. Shipping Costs decreased to $588,368 for the six months
ended September 30, 2009 from $1,465,441 for the six months ended September 30,
2008. Shipping Costs consist of freight charges to our Hong Kong
facility and decreased because of decreased sales.
Gross
Profits. Gross Profits increased to $8,250,030 for the six months ended
September 30, 2009 from $7,472,213 for the six months ended September 30,
2008. Our gross profit percentage for the six months ended September
30, 2009 was 74% compared to 65% for the six months ended September 30,
2008. Gross profits and gross profit percentage increased due to the
Company raising its unit sales prices in July 2008. The price
increase only took effect for the last two months for six months ended September
30, 2008 compared the full six months ended September 30,
2009.
Selling, General
and Administrative Expenses. Selling, General and
Administrative Expenses increased to $4,559,866 for the six months ended
September 30, 2009 from $2,329,916 for the six months ended September 30, 2008.
Selling, General and Administrative Expenses consist of advertising of $21,987
and corporate administrative expenses of $3,367,316, and increasing
consultant fees to ZR Public Relation Company, Ltd. of $570,563 and royalty fees
accrued for trademark of $600,000 at September 30, 2009.
Interest
Income. Interest Income decreased to $299,394 for the six
months ended September 30, 2009 from $772,120 for the six months ended September
30, 2008. Interest Income decreased due to cash balance decrease and
interest rate decline at September 30, 2009.
Foreign Exchange
Loss. Foreign Exchange loss increased to $4,152 for the six
months ended September 30, 2009 from a gain of $355 for the six months ended
September 30, 2008. Foreign Exchange loss increased because of
fluctuation on foreign exchange rates.
Other Income
(Net). Other Income (Net) increased to $72,943 for the six
months ended September 30, 2009 from loss of $140 for the six months ended
September 30, 2008. Other Income (Net) consists of fees received for educational
training classes and increased due to additional classes held.
LIQUIDITY
AND CAPITAL RESOURCES
As
reflected in the accompanying consolidated financial statements, at September
30, 2009, the Company had $36,597,902 cash on hand and a stockholders’
equity of $58,040,429. To date, we have funded our operations
primarily from sales to our Affiliates and through private equity financings.
While we believe in the viability of our strategy to improve sales volume and in
our ability to raise additional funds, there can be no assurances to that
effect.
21
At
September 30, 2009, we had $68,723,140 in total assets, compared to $68,666,322
at March 31, 2009. This was primarily due to the decrease of prepaid
expenses. Our inventories also decreased to $3,454,589 at September 30, 2009
from $3,908,629 at March 31, 2009 due to sales decrease. Our decrease
in investments was due to an equity investment in Excalibur to $14,536,757 at
September 30, 2009 from $17,129,314 at March 31, 2009, and related party Notes
Receivable of $6,811,717 at September 30, 2009 compared to $5,961,717 at March
31, 2009 was due to loans made to Excalibur and Yeuh-Chi Liu. At September
30, 2009, we had $694,023 in invested mutual funds, $4,771,924 in invested bonds
and our prepaid expenses were $977,981.
At
September 30, 2009, our Total Liabilities consisted of $10,682,711compared to
$12,276,962 at March 31, 2009. Liabilities consist of Accounts
Payable; Other Liabilities; Unearned Revenue; Deposits from Investors; and
Income Tax Payable. Accounts payable decreased to $1,232,721 at
September 30, 2009 from $3,610,195 at March 31, 2009 primarily due to due to
payment of trademark royalty expenses for last fiscal year. Other liabilities
consist of commissions (Affiliate rewards) payable, payroll liabilities and
other liabilities, and increased to $8,385,605 at September 30, 2009 from
$6,675,552 at March 31, 2009 because of increased commissions payable and
payroll payable. Unearned revenue consists of customer deposits for unshipped
products, and decreased to $1,064,385 at September 30, 2009 from $1,991,215 at
March 31, 2009 due to increased deliveries in-transit.
Our
products are sensitive to business and personal discretionary spending levels
and tend to decline or grow more slowly during economic downturns, including
downturns in any of our major markets. The current
worldwide recession is expected to adversely affect our sales and liquidity for
the foreseeable future. Although we have mitigated decreases in sales by
lowering our levels of inventory to preserve cash on hand, we do not know when
the recession will subside and when consumer spending will increase from its
current depressed levels. Even if consumer spending increases, we are not sure
when consumer spending will increase for our products which will affect our
liquidity. We believe we have enough capital to fund our operations during the
next 12 months.
TABULAR
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Payments
due by period
|
||||||||||||||||||||
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
||||||||||||||||
Long-Term
Debt Obligations
|
- | - | - | - | - | |||||||||||||||
Capital
Lease Obligations
|
- | - | - | - | - | |||||||||||||||
Operating
Lease Obligations (1)
|
$ | 1,225,085 | $ | 290,610 | $ | 934,475 | - | - | ||||||||||||
Purchase
Obligations
|
- | - | - | - | - | |||||||||||||||
Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
GAAP
|
- | - | - | - | - | |||||||||||||||
Total
|
$ | 1,225,08 | $ | 290,610 | $ | 934,475 | - | - |
(1) Operating
Lease
The
Company rents office space for its sales division in Hong Kong. The
lease provides for free lease in the first two years and a monthly lease
payments approximating $50,000 USD starting the beginning of the third year and
expires on June 30, 2012. Expensing the 5-year total rent evenly over
the life of the lease, the future minimum lease payments under the operating
lease are as follows:
Year
Ending September 30,
|
||||
2010
|
$ | 180,000 | ||
2011
|
360,000 | |||
2012
|
360,000 |
22
The
Company rents storage space for its sales division in Hong Kong. The
lease provides for monthly lease payments approximating $1,135 USD starting on
May 8, 2008 and expires on May 7, 2010. Future minimum lease payments
under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 6,810 | ||
2011
|
1,135 |
The Company rents office space for its sales division in Korea. The lease provides for monthly lease payments approximating $9,330 USD starting on June 25, 2009 and expires on June 24, 2011. Future minimum lease payments under the operating leases as of September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 55,980 | ||
2011
|
111,960 | |||
2012
|
27,990 |
The
Company rents storage space for its sales division in Korea. The
lease provides for monthly lease payments approximating $1,134 USD starting on
June 25, 2009 and expires on June 24, 2011. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 6,804 | ||
2011
|
13,608 | |||
2012
|
3,402 |
The
Company rents office space for its sales division in Vietnam. The
lease provides for monthly lease payments approximating $2,420 USD starting on
May 9, 2009 and expires on May 9, 2011. Future minimum lease payments
under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 14,520 | ||
2011
|
29,040 | |||
2012
|
2,420 |
The
Company rents office space for its sales division in Vietnam
SaiKong. The lease provides for monthly lease payments approximating
$1,400 USD starting on August 8, 2009 and expires on August 8,
2011. Future minimum lease payments under the operating leases as of
September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 8,400 | ||
2011
|
16,800 | |||
2012
|
5,600 |
The
Company rents office space for its sales division in Thailand. The
lease provides for monthly lease payments approximating $1,860 USD starting on
April 20, 2009 and expires on February 28, 2010. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 9,300 |
The
Company rents office space for its division as Thailand Center. The
lease provides for monthly lease payments approximating $564 USD starting on
April 1, 2009 and expires on February 28, 2010. Future minimum lease
payments under the operating leases as of September 30, 2009 approximate the
following:
Year
Ending September 30,
|
||||
2010
|
$ | 2,820 |
23
The
Company rents office space for its auction product purchase center in
China. The lease provides for monthly lease payments approximating
$732 USD starting on June 1, 2009 and expires on May 30, 2010. Future
minimum lease payments under the operating leases as of September 30, 2009
approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 4,392 | ||
2011
|
1,464 |
The Company rents another office space for its auction product purchase center in China. The lease provides for monthly lease payments approximating $264 USD starting on July 15, 2009 and expires on July 14, 2010. Future minimum lease payments under the operating leases as of September 30, 2009 approximate the following:
Year
Ending September 30,
|
||||
2010
|
$ | 1,584 | ||
2011
|
1,056 |
Rent expenses for the six months ended September 30, 2009 and September 30, 2008 were approximately $253,226 and $244,305, respectively.
Excalibur
International Marine Corporation
Due to
the recent changes in policy between Mainland China and Taiwan, an opportunity
was recognized to take advantage of direct sailings for cargo and passengers
through the Taiwan Strait. EFT identified Excalibur International
Marina Corporation (“Excalibur”), a shipping company located in Taiwan, as a
viable entity to participate with in this business opportunity. In
order to expedite the purchase of a new vessel, EFT’s Board of Directors
approved a non-interest bearing, unsecured loan to facilitate this purchase. On
July 28, 2008, the Registrant loaned $19,193,000 to Excalibur. This
loan was still outstanding with balance of $1,564,717 as of September
30, 2009. At the time of the transaction, Excalibur was not a related party nor
did any of the Company or any of its officers or directors have any relationship
with Excalibur or any of its officers and
directors.
On
September 23, 2008, the Registrant signed a loan agreement with Excalibur to
lend $2,000,000 at an interest rate of 3.75% per month with a term of no more
than 60 days. At the end of the 60 days term, the term of the loan was extended
for six months. On November 23, 2008, the Company extended this loan to May 25,
2009. On May 25, 2009, the Company extended this loan to Excalibur for another
six months and decreased the interest rate to 12.5% per annum.
On
October 20, 2008, EFT Investment Co., Ltd. was formed as a
wholly-owned subsidiary of EFT BioTech Holdings, Inc. EFT
Investment Co., Ltd was formed in Taiwan. On October 25, 2008, EFT Investment
Co., Ltd. completed the acquisition of 585,677,500 shares of common stock of
Excalibur; representing approximately 49% shares of issued and outstanding
shares of Excalibur, for an aggregate purchase price of USD $19,193,000. Prior
to the acquisition of Excalibur, Excalibur was not a related person under Item
404 of Regulation S-K.
On
November 25, 2008, the Registrant signed an additional loan agreement with
Excalibur, a then related party, pursuant to which the Registrant loaned
Excalibur $500,000 at the interest rate of 3.75% per month with a term of 30
days with an extension of six months. On December 25, 2008, the
Company extended the loan to May 25, 2009. On May 25, 2009, the
Company extended this loan for another six months and decreased the interest
rate to 12.5% per annum.
On May
13, 2009, the Company signed another loan agreement denominated in U.S. dollars
with Excalibur to lend $600,000 at interest rate of 12.5% per annum with a term
of six months.
On August
17, 2009, the Company signed another loan agreement denominated in U.S. dollars
with Excalibur to lend $250,000 at interest rate of 12.5% per annum with a term
of six months.
Note
Receivable – Related party
The Board
of Directors approved two non-interest bearing unsecured demand loans in the
amount of U.S. $330,000 and $1,567,000 respectively on July 11 and July 25 to
Yeuh-Chi Liu, a vendor and a member of the board of directors of
Excalibur. As of the date hereof the full principal amount remains
outstanding.
Off-Balance
Sheet Arrangements
The
Registrant does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Registrant’s
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
24
Quantitative
and Qualitative Disclosures about Market Risk
For our
fiscal year ended March 31, 2009, 100% of our total sales consisted of sales
outside of the United States, with 0% of total sales denominated in currencies
other than the United States dollar. In addition, from time to time we execute
intercompany loans with our foreign subsidiaries that are denominated in foreign
currencies.
We are
exposed to foreign currency risks that arise from normal business operations.
These risks include the translation of local currency balances of our Company
and foreign subsidiaries, intercompany loans with foreign subsidiaries and
transactions denominated in foreign currencies. It is our policy not to enter
into derivative financial instruments for speculative purposes. We do not hedge
our exposure to the translation of reported results of our foreign subsidiaries
from local currency to United States dollars. A 10% adverse change in the
underlying foreign currency exchange rates would not be significant to our
financial condition or results of operations.
Critical
Accounting Policies
The
Registrant’s financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. The Registrant believes that the following are some
of the more critical judgment areas in the application of the Registrant’s
accounting policies that currently affect the Registrant’s financial condition
and results of operations.
Cash & Cash
Equivalents
Cash and
cash equivalents include cash on hand and cash in time deposits, and
certificates. The Company maintains its accounts in various banks and
several which exceed the federally insured limit.
Inventories
Inventories
are valued at the lower of cost or market. Product cost includes completed
merchandise and is accounted for using the first-in, first-out basis. The
Company has two warehouses, one in City of Industry, CA and the other one in
Kowloon, HK. On a quarterly basis, the Company reviews inventory levels in each
country for estimated obsolescence or unmarketable items, as compared to future
demand requirements and the shelf life of the various products. Based on this
review, the Company records inventory write-downs when costs exceed expected net
realizable value. Historically, the Company estimates of the obsolete or
unmarketable items have been insignificant.
SFAS No.
151 (ASC 605), “Inventory Costs,” (“SFAS 151”) clarifies that abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as period charges, rather than as an inventory
value. This standard also requires the allocation of fixed production overheads
to inventory based on the normal capacity of the production facilities. The
Registrant’s existing accounting policy for inventory valuation is generally
consistent with this guidance, and therefore, the adoption of SFAS 151 (ASC 605)
did not have a significant impact on the Registrant’s 2008 and 2009 financial
results.
Notes Receivables from
Related Parties
Notes
receivable consists of receivables from the Registrant’s loans to Excalibur,
Taiwan, and Yeuh-Chi Liu, each a related party. As of September 30, 2009,
outstanding loans to Excalibur totaled $ 4.91 million and to Yeuh-Chi Liu
$1.89 million. The Registrant periodically reviews notes receivables for
reliability and collectability, and recent account activities. If the
Registrant’s estimates regarding collectability are inaccurate or an
unforeseen matter is to occur, the Registrant may be exposed to a write-offs or
bad debts. As of September 30, 2009, the Registrant does not have an allowance
for bad debts.
Investment
The
Registrant accounts for equity investments in entities in which it exercises
significant influence but does not own a majority equity interest in or have
control using the equity method. The Registrant evaluates its equity investments
for impairment whenever events and changes in business circumstances indicate
the carrying amount of the equity investment may not be fully recoverable. On
October 25, 2008, the Registrant, through its wholly-owned subsidiary, EFT
Investment Co. Ltd., invested $19,193,000 in Excalibur International Marine
Corporation for 48.81% of its ownership. The Registrant recorded this
investment using the equity method because of its significant influence over the
entity.
Unearned
Revenues
Unearned
Revenues consist of cash amounts received in advance for goods and services to
be delivered at a future date. The Registrant records the cash from customers as
a liability until the products are delivered.
Revenue
The
Registrant receives payment by cash only for orders from customers or
Affiliates. Cash consideration given by the Registrant to its sales Affiliates
is considered to be a reduction of the selling prices of the Company’s products,
thus, is recorded as a reduction of revenue. Sales revenues are recorded when
the merchandise delivery is completed.
Foreign Currency
Translation
The
Company’s functional currency is the U.S. dollar and its operation in Hong Kong
uses Hong Kong dollar (HKD) as its functional currency. An entity’s
functional currency is the currency of the primary economic environment in which
the entity operates. Management must use judgment in determining an entity’s
functional currency, assessing economic factors including cash flow, sales
price, sales market, expense, financing and inter-company transactions and
arrangements. Impact from exchange rate changes related to transactions
denominated in currencies other than the functional currency is recorded as a
gain and loss in the statements of operations, while impact from exchange rate
changes related to translating a foreign entity’s financial statements from the
functional currency to its reporting currency, the U.S. dollar, is disclosed and
accumulated in a separate component under the equity section of the balance
sheets. Different judgments or assumptions resulting in a change of functional
currency may materially impact the Registrant’s financial position and results
of operations.
25
Income
Taxes
The
Registrant uses the asset and liability method of accounting for income taxes.
Under this method, income tax expense is recognized for the amount of taxes
payable or refundable for the current year. In addition, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities and for operating losses and tax credit carry-forwards. Management
must make assumptions, judgments and estimates to determine the current
provision for income taxes and the deferred tax assets and liabilities and any
valuation allowance to be recorded against a deferred tax asset. Management’s
judgments, assumptions and estimates relative to the current provision for
income tax take into account current tax laws, management’s interpretation of
current tax laws and possible outcomes of current and future audits conducted by
foreign and domestic tax authorities. Changes in tax law or management’s
interpretation of tax laws and the resolution of current and future tax audits
could significantly impact the amounts provided for income taxes in the
financial statements. Management’s assumptions, judgments and estimates relative
to the value of a deferred tax asset take into account predictions of the amount
and category of future taxable income, such as income from operations. Actual
operating results and the underlying amount and category of income in future
years could render management’s current assumptions, judgments and estimates of
recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and
estimates mentioned above could cause our actual income tax obligations to
differ from the estimates, thus materially impacting the financial position and
results of operations.
RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2009 the FASB established the Accounting Standards Codification ("Codification"
or "ASC") as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States ("GAAP"). Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855),
"Subsequent Events", SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC
Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC
Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB Statement No.
162" were recently issued. SFAS No. 165, 166, 167, and 168 have no current
applicability to the Company or their effect on the financial statements would
not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability
to the Company or their effect on the financial statements would not have been
significant.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
For the
quarter and three month period ended September 30, 2009, 100% of our total sales
consisted of sales outside of the United States, with 0% of total sales
denominated in currencies other than the United States dollar. In addition, from
time to time we execute intercompany loans with our foreign subsidiaries that
are denominated in foreign currencies.
We are
exposed to foreign currency risks that arise from normal business operations.
These risks include the translation of local currency balances of our Company
and foreign subsidiaries, intercompany loans with foreign subsidiaries and
transactions denominated in foreign currencies. It is our policy not to enter
into derivative financial instruments for speculative purposes. We do not hedge
our exposure to the translation of reported results of our foreign subsidiaries
from local currency to United States dollars. A 10% adverse change in the
underlying foreign currency exchange rates would not be significant to our
financial condition or results of operations.
Evaluation of Disclosure Controls and
Procedures
Our
Principal Executive Officer and Principal Financial Officer are responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.
26
Our
Principal Executive Officer and Principal Financial Officer evaluated the
effectiveness of our disclosure controls and procedures as of September 30,
2009. Based on that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures as of
the end of the period covered by this report were effective such that the
information required to be disclosed by us in reports filed under the Securities
Exchange Act of 1934 is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms and (ii) accumulated and
communicated to the Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisions regarding disclosure.
Changes
in Internal Control over Financial Reporting
During
the quarter ended September 30, 2009, there were no changes in our internal
controls over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART
II
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
Item
1A. Risk Factors.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Item
3. Defaults upon Senior Securities.
None
None
Item
5. Other Information.
None.
Item
6. Exhibits.
Exhibit
No.:
|
Description:
|
|
31.1
|
Certification
by Jack Jie Qin, Principal Executive Officer of EFT BioTech Holdings,
Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as amended.
|
|
31.2
|
Certification
by Sharon Tang, Principal Financial and Accounting Officer of EFT BioTech
Holdings, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended.
|
|
32.1
|
Certification
by Jack Jie Qin, Principal Executive Officer of EFT BioTech Holdings,
Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934, as amended.
|
|
32.2
|
Certification
by Sharon Tang, Principal Financial and Accounting Officer of EFT BioTech
Holdings, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
27
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
EFT
BIOTECH HOLDINGS, INC.
|
|||
Dated:
November 16, 2009
|
|
/s/ JACK JIE QIN | |
Jack Jie Qin | |||
Chief Executive Officer, President and Chairman | |||
(Principal Executive Officer) | |||
Dated: November 16, 2009 | /s/ SHARON TANG | ||
Sharon Tang | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
28