EFT Holdings, Inc. - FORM 10-Q

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EX-32.1 - EXHIBIT 32.1 - EFT Holdings, Inc.	v317780_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - EFT Holdings, Inc.	v317780_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - EFT Holdings, Inc.	v317780_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - EFT Holdings, Inc.	v317780_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - EFT Holdings, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _______

Commission File Number: 000-53730

EFT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada		22-1211204
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

17800 Castleton St., Suite 300

City of Industry, CA 91748

(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number including area code: (626) 581-3335

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Larger accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of the latest practicable date, July 23, 2012, the registrant had 75,983,201 outstanding shares of common stock.

INDEX

		Page

	Part I — Financial Information

Item 1.	Financial Statements.	4
Consolidated Balance Sheets at December 31, 2011 and March 31, 2011 (Unaudited)		4
Consolidated Statements of Operations for the Three Months and Nine Months Ended December 31, 2011 and 2010 (Unaudited)		5
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		6
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2011 and 2010 (Unaudited)		7
Notes to Consolidated Financial Statements for the Three Months and Nine Months Ended December 31, 2011 and 2010 (Unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	38
Item 4.	Controls and Procedures.	39

	Part II — Other Information

Item 1.	Legal Proceedings.	40
Item 1A.	Risk Factors.	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 3.	Defaults Upon Senior Securities.	40
Item 4.	Mine Safety Disclosures.	40
Item 5.	Other Information.	40

Item 6.	Exhibits.	40

Signatures		41

Cautionary Statement

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update these forward-looking statements. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this quarterly report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011 as filed with the Securities and Exchange Commission.

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

EFT HOLDINGS, INC.

Consolidated Balance Sheets

	December 31, 2011			March 31, 2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,662,550		$	26,805,205
Securities available for sale		10,734,373			16,773,970
Inventories		3,509,648			2,488,068
Prepaid expenses		412,142			554,570
Other receivables		291,062			425,558
Total current assets		19,609,775			47,047,371

Restricted cash		193,992			193,992
Property and equipment, net		8,021,211			8,722,774
Intangible assets, net		959			-
Investment in developments in progress		20,779,249			-
Security deposit		487,198			527,930
Total assets	$	49,092,384		$	56,492,067
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,256,969		$	1,962,119
Commission payable		4,652,496			8,346,853
Other liabilities		680,534			304,029
Unearned revenues		2,870,721			11,327,787
Due to related parties		45,947			47,995
Total current liabilities		10,506,667			21,988,783
Contingent liabilities		2,589,104			2,703,409
Total liabilities		13,095,771			24,692,192

Equity
EFT Holdings, Inc. 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 shares authorized, 75,983,201 shares issued and outstanding at December 31 and March 31, 2011		760			760
Additional paid in capital		52,854,891			52,854,891
Retained deficits		(14,984,644	)		(19,358,694	)
Accumulated other comprehensive income		1,231,231			462,790
Total EFT Holdings, Inc. stockholders’ equity		39,102,238			33,959,747
Non-controlling interest		(3,105,625	)		(2,159,872	)
Total equity		35,996,613			31,799,875
Total liabilities and equity	$	49,092,384		$	56,492,067

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

EFT HOLDINGS, INC.

Consolidated Statements of Operations (Unaudited)

	Three Months Ended						Nine Months Ended
	December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010

Sales revenues, net	$	847,462		$	3,305,807		$	13,090,135		$	10,857,113
Shipping charges		316,470			854,770			1,680,353			2,606,500
Transportation income/(loss) – Excalibur		(4	)		81,329			1,020			139,113
		1,163,928			4,241,906			14,771,508			13,602,726
Cost of goods sold		260,991			1,696,916			2,173,965			4,098,657
Shipping costs		145,803			531,885			1,133,616			1,516,778
Operating costs - Excalibur		284,656			451,326			838,963			2,273,975
		691,450			2,680,127			4,146,544			7,889,410
Gross profit		472,478			1,561,779			10,624,964			5,713,316
Operating expenses:
Selling, general and administrative expenses		2,116,501			1,833,110			5,991,874			5,565,850
Marketing expenses		115,398			299,374			223,393			853,133
Royalty expenses		157,790			502,566			872,191			1,522,251
Impairment loss of loan receivable		-			1,567,000			-			1,567,000
Impairment loss of transportation equipment		-			1,164,091			-			5,364,091
Total operating expenses		2,389,689			5,366,141			7,087,458			14,872,325
Net operating income/(loss)		(1,917,211	)		(3,804,362	)		3,537,506			(9,159,009	)
Other income/(expense)
Interest income		96,545			254,770			393,918			764,984
Gain on disposal of held-to-maturity securities		-			243,855			-			243,855
Gain on disposal of securities available-for-sale		4,195			22,590			98,559			116,239
Dividend income		12,882			9,586			38,935			21,355
Foreign exchange loss		(194,970	)		(6,248	)		(1,106,848	)		(1,924	)
Other income		111,567			23,087			116,329			58,173

Total other income/(expense)		30,219			547,640			(459,107	)		1,202,682

Net income/(loss) before income taxes and non-controlling interest		(1,886,992	)		(3,256,722	)		3,078,399			(7,956,327	)
Income benefit/(taxes)		-			(143,539	)		64,900			(145,939	)
Net income/(loss)		(1,886,992	)		(3,400,261	)		3,143,299			(8,102,266	)
Non-controlling interest		565,639			876,257			1,230,751			4,143,406
Net income/(loss) attributable to EFT Holdings, Inc.		(1,321,353	)	$	(2,524,004	)		4,374,050		$	(3,958,860	)

Net income/(loss) per common share
Basic and diluted	$	(0.02	)	$	(0.03	)	$	0.06		$	(0.05	)
Weighted average common shares outstanding
Basic and diluted		75,983,201			75,983,205			75,983,201			75,983,205

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

EFT HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

											Accumulated
						Additional		Retained			Other						Total
	Common Stock					Paid-in		Earnings			Comprehensive			Non-controlling			Stockholders'
	Shares			Amount		Capital		(Deficits)			Income (Loss)			Interests			Equity

BALANCE, MARCH 31, 2010		75,983,205		$	760	$	52,854,891	$	(3,949,518	)	$	126,469		$	2,559,516		$	51,592,118

Retirement of common stock		(4	)		-		-		-			-			-			-
Comprehensive income:
Net loss		-			-		-		(15,409,176	)		-			(4,347,704	)		(19,756,880	)
Unrealized gain on securities available for sale		-			-		-		-			206,198			-			206,198
Foreign currency translation adjustment		-			-		-		-			130,123			(371,684	)		(241,561	)

BALANCE, MARCH 31, 2011		75,983,201		$	760	$	52,854,891	$	(19,358,694	)	$	462,790		$	(2,159,872	)	$	31,799,875

Comprehensive income:
Net income/(loss)		-			-		-		4,374,050			-			(1,230,751	)		3,143,299
Unrealized loss on securities available for sale		-			-		-		-			(112,735	)		-			(112,735	)
Foreign currency translation adjustment		-			-		-		-			881,176			284,998			1,166,174

BALANCE, DECEMBER 31, 2011		75,983,201		$	760	$	52,854,891	$	(14,984,644	)	$	1,231,231		$	(3,105,625	)	$	35,996,613

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

EFT HOLDINGS, INC.

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	December 31, 2011			December 31, 2010
Cash flows from operating activities:
Net income/(loss)	$	3,143,299		$	(8,102,266	)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization		878,662			978,913
Bond premium amortization		-			9,625
Impairment loss of loan receivable		-			1,567,000
Impairment loss of transportation equipment		-			5,364,091
Gain from securities available for sale		(98,559	)		(116,239	)
Gain from held-to-maturity securities		-			(243,855	)
Changes in operating assets and liabilities:
Inventories		(1,021,581	)		134,247
Prepaid expenses and other receivables		311,619			(317,799	)
Accounts payable		407,541			469,461
Commission payable		(3,694,356	)		(1,223,866	)
Other liabilities		273,116			896,050
Unearned revenues		(8,457,066	)		932,579
Net cash provided by/(used in) operating activities		(8,257,325	)		347,941

Cash flows from investing activities:
Additions to fixed assets		(178,060	)		(322,689	)
Investment in development in progress		(20,779,249	)		-
Convertible note receivable		-			(5,000,000	)
Notes receivables – related party		-			(33,000	)
Proceeds from vendor for repayment of loan		-			167,100
Proceeds from corporate bonds		-			4,497,395
Proceeds from maturity of corporate bonds		-			500,000
Purchase of securities available for sale		(882,999	)		(5,773,906	)
Proceeds from available for sales securities		6,908,419			3,775,009
Net cash used in investing activities		(14,931,889	)		(2,190,091	)

Effect of exchange rate changes on cash		1,046,559			(73,772	)
Net decrease in cash		(22,142,655	)		(1,915,922	)
Cash, beginning of period		26,805,205			29,434,509
Cash, end of period	$	4,662,550		$	27,518,587

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

EFT HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - ORGANIZATION

EFT Holdings, Inc., “EFT Holdings” or “the Company,” formerly EFT Biotech Holdings, Inc., HumWare Media Corporation, GRG, Inc., Ghiglieri Corporation, and Karat Productions, Inc., was incorporated in the State of Nevada on March 19, 1992.

On November 18, 2007, the Company issued 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 owned a majority of the Company's common stock immediately following the Transaction. As EFT Holdings was a non-operating public shell corporation that acquired an operating company, this Transaction was 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.

The Company, through its subsidiaries, uses the internet as its “storefront” and business platform to sell and distribute American brand products consisting of 27 different nutritional products, some of which are oral sprays, 21 different personal care products, an environmentally protective automotive product, an environmentally friendly house cleaner and a flip top portable drinking container.

On July 25, 2008, the Company loaned $1,567,000 to Yeuh-Chi Liu, a vendor to the Company. The proceeds of the loan were used by Yeuh-Chi Liu to acquire a 3.97% interest in Excalibur International Marine Corporation, “Excalibur,” which was offered as collateral for the loan. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since then. On October 25, 2008, EFT Investment Co. Ltd., “EFT Investment,” a subsidiary of the Company, acquired 48.81% of Excalibur’s capital stock. Due to this combined ownership and the substantial financial support EFT Investment has provided to Excalibur to fund its operations and other factors, EFT Investment is deemed to have a controlling interest in Excalibur as defined by Accounting Standards Codification, ”ASC,” Topic 810, Consolidation, which required the Company to consolidate the financial statements of Excalibur.

Historically, Taiwan Vessel Law set forth certain Taiwan shareholding requirements for companies owning ships registered in Taiwan. For example, a limited liability company owning a ship registered in Taiwan, not operating international liners, like Excalibur, was required to have at least 2/3 of its capital stock owned by Taiwanese citizens, but violation of which was not subject to fines and/or other penalties. The Vessel Law was amended in December 2010, and after the amendment, no more than 50% of the capital stock of limited liability companies owning ships registered in Taiwan, like Excalibur, can be owned by non-Taiwanese citizens. Therefore, the Company’s ownership in Excalibur is no longer required to be reduced to 33%, and the Company’s ownership of 48.81% of the capital stock of Excalibur is in compliance with applicable law in Taiwan.

In February 2010 the Company assigned the worldwide distribution and servicing rights to a product known as the “EFT-Phone” to Digital Development Partners, “Digital”, a previously unrelated company, in exchange for 79,265,000 shares of Digital’s common stock. The shares acquired represent approximately 92% of Digital’s outstanding common stock.

The EFT-Phone is a cell phone which uses the Android operating system, which is a different system from the Microsoft operating system. The EFT-Phone has an application that will allow the Company’s Affiliates to access all of their back office sites, including their commission accounts, through which the Affiliates will be able to deposit, withdraw and transfer money to another account or to another Affiliate at no cost. The worldwide distribution and servicing rights to the EFT-Phone include the right to sell the EFT-Phone to the Company’s Affiliates and others. Digital also acquired the rights to distribute all EFT-Phone accessories. The EFT-Phone is manufactured by an unrelated third party. Distribution of the EFT-Phone began in July, 2010.

On May 2, 2011, Jack Qin, as an agent, entered into agreements to purchase an office building located in Taipei, Taiwan. The office building is under construction and will be completed by the end of 2013. The total purchase price for the office building, which consists of 14 floors and 144 parking spaces, is approximately $240.8 million. The Company intends to retain one floor of the office building for its own business operation and plans to sell the majority of the remaining floors. On July 1, 2011 and July 7, 2011, EFT Investment Co. Ltd. (Taiwan), as a party to the contract in place of Jack Qin, entered into two sets of agreements with the seller of the office building that provided for substantially the same rights and obligations as the original May 2, 2011 agreements.

Note 2 - RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS

On February 16, 2012, the Company announced in a Current Report filed on Form 8-K that it had identified historical accounting errors relating to the calculation of the Company’s cost of goods sold (“COGS”) in the Company’s previously issued unaudited interim consolidated financial statements as of and for the quarterly periods ended June 30 and September 30, 2011.

The Company’s management has since recalculated the GIT and COGS for the quarterly periods ended June 30 and September 30, 2011 and restated its consolidated financial statements for prior periods. The effect of the adjustment is summarized below.

	Three months ended						Six months ended
	June 30, 2011			September 30, 2011			September 30, 2011
Net income/(loss) attributable to EFT Holdings, Inc.
Adjustments for -
Cost of goods sold	$	(614,991	)	$	359,534		$	(255,456	)
Net income/(loss) – as previously reported		6,397,576			(1,687,641	)		4,709,935
Net income/(loss) – as restated	$	7,012,567		$	(2,047,175	)	$	4,965,391

The effects of the restatement of the Company’s prior period financial statements for the above matter are summarized below:

	Three months Ended June 30, 2011
	As Previously reported		As restated		Changes
Sales revenues, net	$	9,520,294	$	9,520,294	$	-
Shipping charges		1,001,810		1,001,810		-
Transportation income – Excalibur		1,012		1,012		-
		10,523,116		10,523,116		-
Cost of goods sold		1,805,587		1,190,596		614,991
Shipping costs		630,962		630,962
Operating costs - Excalibur		88,984		291,473		(202,489	)
		2,525,533		2,113,031		412,502
Gross profit		7,997,583		8,410,085		(412,502	)
Operating expenses:
Selling, general and administrative expenses		1,912,708		1,982,111		(69,403	)
Depreciation		271,892		-		271,892
Royalty expenses		271,925		271,925		-
Marketing expenses		41,441		41,441		-
Total operating expenses		2,497,966		2,295,477		202,489

Net operating income		5,499,617		6,114,608		(614,991	)

Other income/(expense)
Interest income		185,396		185,396		-
Gain on disposal of available-for-sale securities		86,000		86,000		-
Dividend income		12,528		12,528		-
Foreign exchange gain		611,642		611,642		-
Other income		2,393		2,393		-
Total other income		897,959		897,959		-

Net income before income taxes and non-controlling interest		6,397,576		7,012,567		(614,991	)
Income taxes expense		-		-
Net income		6,397,576		7,012,567		(614,991	)
Non-controlling interest		329,835		329,835		-
Net income attributable to EFT Holdings, Inc.	$	6,727,411	$	7,342,402	$	(614,991	)

Net income per common share
Basic and diluted	$	0.09	$	0.10	$	(0.01	)
Weighted average common shares outstanding
Basic and diluted		75,983,201		75,983,201		-

	Three Months Ended September 30, 2011									Six Months Ended September 30, 2011
	As previously reported			As restated			Changes			As previously reported			As restated			Changes

Sales revenues, net	$	2,722,379		$	2,722,379		$	-		$	12,242,673		$	12,242,673		$	-
Shipping charges		362,073			362,073			-			1,363,883			1,363,883			-
Transportation income – Excalibur		12			12			-			1,024			1,024			-
		3,084,464			3,084,464			-			13,607,580			13,607,580			-
Cost of goods sold		362,843			722,378			(359,535	)		2,168,430			1,912,974			255,456
Shipping costs		356,851			356,851			-			987,813			987,813			-
Operating costs - Excalibur		55,513			262,834			(207,321	)		144,497			554,307			(409,810	)
		775,207			1,342,063			(566,856	)		3,300,740			3,455,094			(154,354	)
Gross profit		2,309,257			1,742,401			566.856			10,306,840			10,152,486			154,354
Operating expenses:
Selling, general and administrative expenses		1,814,909			1,893,262			(78,353	)		3,727,617			3,875,373			(147,756	)
Depreciation		285,674			-			285,674			557,566			-			557,566
Marketing expenses		66,554			66,554			-			107,995			107,995			-
Royalty expenses		442,476			442,476			-			714,401			714,401			-
Total operating expenses		2,609,613			2,402,292			207,321			5,107,579			4,697,769			409,810
Net operating income/(loss)		(300,356	)		(659,891	)		(359,535	)		5,199,261			5,454,717			(255,456	)
Other income/(expense)
Interest income		111,977			111,977			-			297,373			297,373			-
Gain on disposal of securities available-for-sale		8,364			8,364			-			94,364			94,364			-
Dividend income		13,525			13,525			-			26,053			26,053			-
Foreign exchange gain/(loss)		(1,523,520	)		(1,523,520	)		-			(911,878	)		(911,878	)		-
Other income		2,369			2,369			-			4,762			4,762			-

Total other income/(expense)		(1,387,285	)		(1,387,285	)		-			(489,326	)		(489,326	)		-

Net income/(loss) before income taxes and non-controlling interest		(1,687,641	)		(2,047,176	)		(359,535	)		4,709,935			4,965,391			255,456
Income benefit		64,900			64,900			-			64,900			64,900			-
Net income/(loss)		(1,622,741	)		(1,982,276	)		(359,535	)		4,774,835			5,030,291			255,456
Non-controlling interest		335,277			335,277			-			665,112			665,112
Net income/(loss) attributable to EFT Holdings, Inc.	$	(1,287,464	)	$	(1,646,999	)	$	(359,535	)	$	5,439,947		$	5,695,403		$	255,456

Net income/(loss) per common share
Basic and diluted	$	(0.02	)	$	(0.02	)	$	-		$	0.07		$	0.07		$	-
Weighted average common shares outstanding
Basic and diluted		75,983,201			75,983,201			-			75,983,201			75,983,201			-

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

These unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, “GAAP,” for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending March 31, 2012.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended March 31, 2011, included in the Company’s 2011 Annual Report on Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 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 operations in Hong Kong, Taiwan and China use local currencies as their functional currency. The financial statements of the subsidiaries are translated into U.S. Dollars, “USD,” in accordance with ASC Topic 830, Foreign Currency Translation. According to ASC 830, all assets and liabilities are 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 period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, Reporting Comprehensive Income as a Component of Stockholders’ Equity. Foreign exchange transaction gains and losses are reflected in the statement of operations.

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.

Contingencies

Certain conditions may exist as of the date the financial statements are issued which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and Taiwanese and Singapore legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s Taiwanese and Singapore legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed in the footnotes to the financial statements.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less. The Company maintains its accounts in banks and financial institutions in amounts that, at times, may exceed the federally insured limit. Management believes the Company is not exposed to any significant credit risk on those accounts.

Securities Available for Sale

The Company’s investments in corporate bonds 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 as an expense 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. Inventory consists of nutritional, personal care, automotive additive, environmentally safe products, portable drinking containers and EFT-Phone. The Company has two warehouses, one in City of Industry, CA and the other in Kowloon, Hong Kong. On a quarterly basis, the Company’s management reviews inventory levels in each country for estimated obsolescence or unmarketable items, as compared with 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’s estimates of obsolete or unmarketable items have been insignificant.

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 and equipment	3-8 years
Computers and office equipment	3-5 years
Automobiles	5 years
Leasehold improvements	5 years
Transportation equipment	12 years

For the nine months ended December 31, 2011 and 2010, depreciation expenses were $878,662 and $978,913, respectively.

Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC Topic 360. 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 amount. 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. The Company has recorded an impairment loss of $5.4 million on the transportation equipment of Excalibur during the year ended March 31, 2011 because the net book value of the equipment has exceeded its market value.

Fair Value of Financial Instruments

ASC Topic 825 requires the Company to disclose the estimated fair values of financial instruments. The carrying amounts reported in the Company’s consolidated balance sheets 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

ASC Topic 820 defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. 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 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 ASC Topic 820.

Stock-Based Compensation

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.

Stock Issued to Officers or Employees

During the nine months ended December 31, 2011 and 2010, the Company did not issue any stock options or warrants to its officers or employees nor were there any outstanding warrants or options held by officers or employees as of December 31, 2011.

Stock Issued for Services

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from persons other than employees in accordance with 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 services as defined by ASC Topic 505.

Revenue / Unearned Revenue

The Company’s revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin, “SAB,” No. 104, Revenue Recognition, “SAB 104,” ASC Topic 605, Accounting for Consideration Given by a Vendor to a Customer, Including a Reseller of the Vendor’s Products, 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 collectability is reasonably assured. Transportation income is generated from transporting passengers and cargo and is recognized when passengers and cargo are conveyed to the destination port. Payments received before all relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Commissions paid to the Company’s Affiliates are considered to be a reduction of the selling prices of its products, and are recorded as a reduction of revenue. The Company’s policy is to pay out commissions to Affiliates upon receipt of sales orders even before revenue can be recognized.

Unearned Revenues consist of cash received in advance for goods to be delivered at a future date. The Company records the payments received from Affiliates as a liability until the products are delivered. Sales are recorded when the products are delivered.

In 2009, the Company developed a “reverse auction” program as a means of attracting younger members who typically would not otherwise become an Affiliate. The reverse auction is unlike an ordinary auction, also known as a forward auction, where bidders bid the price up and the highest bidder wins that product at the conclusion of bidding. In a reverse auction the objective is to bid the price of a product down.

To participate in the reverse auction, one must initially purchase 300 bids at a price of $1.00 per bid. The purchase of the 300 bids automatically qualifies the purchaser as an Affiliate, and no purchase of the Company’s products is required. All bids are non-refundable once purchased.

Once the reverse auction for a particular product begins, participants can, through a designated website, enter a bid for the product. Each $1.00 bid lowers the price of the product by $0.01. At the conclusion of the auction, the person who entered the last bid is entitled to buy the product at the price reduced by the auction process. The Company only recognizes revenue for the price a bidder pays to purchase relevant bids when the bidder places such bids on an auction product. The reverse auction program ceased operation on April 30, 2011.

For the nine months ended December 31, 2011 and 2010, the reverse auction program generated revenues of $116,067 and $1,369,441, respectively.

In May 2011, the Company introduced to Affiliates a series of “eZ Global Traveler” programs attracting Affiliates to enjoy the benefits of travelling internationally. To participate in the Traveler programs, one must initially make a non-refundable deposit according to the programs’ requirements. When the Affiliate completes a cycle of the program he joined, he will receive a bonus reward and the Affiliate only need to pay $1 for his own trip.

Warranty

The Company generally does not provide customers with right of return, but does provide a warranty, entitling the purchaser to a replacement of defective products within six months from the date of sale. Historically, warranty costs have not been material. 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. Other factors are less significant due to the fact that the warranty period is only six months and replacement products are already in stock or available at a pre-determined price. The anticipated rate of warranty claims is the primary factor impacting the estimated warranty obligation. Warranty claims are relatively predictable based on 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 Statements of Operations. Management reviews the adequacy of warranty reserves each reporting period based on historical experience. The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its limited warranty. If actual results differ from the estimates, the Company revises its estimated warranty liability.

As of December 31, 2011, the Company’s estimated warranty expense was as follows:

Products sold for
0-2 months	2% of cost
3-4 months	1.5% of cost
5-6 months	1% of cost

Shipping Costs

The Company’s shipping costs are included in cost of sales for all periods presented.

Marketing Expenses

On January 1, 2009, EFT International Limited, a wholly-owned subsidiary of EFT Holdings, Inc., entered into a contract with ZR Public Relation Consultant Ltd., the “Consultant,” which provides public relations consulting services in Asia. In consideration of the services rendered by the Consultant, EFT International Limited pays 5% of total commission payout for each fiscal year. For the nine months ended December 31, 2011 and 2010, consultant expense for EFT International Limited was $223,393 and $853,133 respectively.

Income Taxes

The Company follows ASC Topic 740, 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.

Under ASC Topic 740, the Company 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.

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.

The following table shows the weighted-average number of potentially dilutive shares excluded, since they were anti-dilutive, from the diluted net income per share calculation for the nine months ended December 31, 2011 and 2010:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2011		2010		2011		2010
Weighted average
warrants outstanding		9,872,744		14,890,040		13,211,526		14,890,040
Total		9,872,744		14,890,040		13,211,526		14,890,040

	Three Months Ended December 31,						Nine Months Ended December 31,
	2011			2010			2011		2010
Historical Numerator:
Net income/(loss) attributable to EFT Biotech Holdings, Inc.	$	(1,321,353	)	$	(2,524,004	)	$	4,374,050	$	(3,958,860	)

Denominator:
Weighted-average shares used for basic net income per share		75,983,201			75,983,205			75,983,201		75,983,205
Basic net income/(loss) per share	$	(0.02	)	$	(0.03	)	$	0.06	$	(0.05	)

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, unrealized loss on marketable securities classified as available-for-sale, and foreign currency translation adjustments.

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 are constantly at a marginal to zero dollar ($0) level and its revenues are derived from orders placed 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 customers’ historical credit history. 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

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.

The Company’s business is classified by management into two reportable segments: transportation business and online business. These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure. The online business reportable segment is an aggregation of the Company’s online operating segments, which are organized to sell the Company’s products to Affiliates through its website. The online business reportable segment derives revenue from the sales of nutritional products, personal care products and EFT-phones. The transportation service reportable segment derives revenue from transport passengers and cargo between Taiwan and Mainland China through the Taiwan Strait. Substantially all of the Company’s revenue is generated from Mainland China.

Recent accounting pronouncements

In December 2011, the FASB issued amendments to ASC Topic 220, “Comprehensive Income”. The amendments in this Update supersede certain pending paragraphs in Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, to defer the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in Accounting Standards, Update No. 2011-05. The amendments are being made to allow the board of directors time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. This topic is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011.

In December 2011, the FASB issued the amendment to ASC Topic 210, “Balance Sheet”. The amendments in this update provide enhanced disclosures that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. This topic will be effective retrospectively for all comparative periods presented for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. The Company does not believe that the adoption of ASC 210 will have a material effect on its financial statements.

In June 2011, the FASB issued ASU 2011-05, an amendment to ASC Topic 220, “Comprehensive Income,” which provides the entity has the option to present the total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This topic will be effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 for public entities, early adoption is permitted. Other than a change in presentation, the implementation of this accounting pronouncement is not expected to have a material impact on the Company’s financial statements when implemented.

In May 2011, the FASB issued ASU 2011-04, an amendment to ASC Topic 820, “Fair Value Measurement,” which amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Some of the amendments clarify FASB’s intent about the application of existing fair value measurement requirements, including (1) specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets and are not relevant when measuring the fair value of financial assets or of liabilities; (2) requirements specific to measuring the fair value of instruments classified in a reporting entity’s shareholders’ equity, such as equity interest issued as consideration in a business combination; and (3) clarifying that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy.

Other amendments change particular principles or requirements for measuring fair value or for disclosing information about fair value measurements, including (1) permitting an exception to the requirements in Topic 820 for measuring fair value when a reporting entity manages its financial instruments on the basis of its net exposure, rather than its gross exposure, to those risks; (2) clarifying that the application of premiums and discount in a fair value measurement is related to the unit of account for the asset or liability being measured at fair value; and (3) requiring additional disclosures about fair value measurements. This topic will be effective for periods beginning after December 15, 2011, early adoption is not permitted. The Company does not believe that the adoption of the amendments to ASC 820 will have a material effect on its financial statements.

There are no other new accounting pronouncements adopted or enacted during the three and nine months ended December 31, 2011 that had, or are expected to have, a material impact on the Company’s financial statements.

Note 4 - FAIR VALUE MEASUREMENTS

ASC Topic 820 defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. This topic does not require any new fair value measurements. ASC Topic 820 defines fair value as the price that would be received upon the sale of 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, 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.

Level2—

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 ASC Topic 820, the Company measures its securities available for sale at fair value. The securities available for sale are classified within Level 1 since they are valued using quoted market prices.

As discussed in Note 9, the Company’s investment in the transportation equipment of Excalibur has been valued at fair value, on a non-recurring basis, using Level 3 – unobservable inputs, to reflect management’s estimate that the net book value of the transportation equipment owned by Excalibur exceeded its market value. Accordingly, on a non-recurring basis, using Level 3 – unobservable inputs, the Company recorded an impairment loss of $5.4 million during the year ended March 31, 2011.

As discussed in Note 10, the Company’s investment in CTX Virtual Technologies has been valued at fair value, on a non-recurring basis, using Level 3 – unobservable inputs, to reflect the Company’s assessment of its inability to recover its investment in the foreseeable future. Accordingly, on a non-recurring basis, using Level 3 – unobservable inputs, the Company recorded an impairment loss of $5.0 million during the year ended March 31, 2011.

Assets measured at fair value are summarized below:

	December 31, 2011
	Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total
Securities available for sale - Corporate bonds	$	10,734,373	$	-	$	-	$	10,734,373
CTX Virtual Technologies		-		-		-		-
Transportation equipment of Excalibur		-		-		6,422,464		6,422,462
Total assets measured at fair value	$	10,734,373	$	-	$	6,422,464	$	17,156,837

	March 31, 2011
	Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total

Securities available for sale	$	16,773,970	$	-	$	-	$	16,773,970
CTX Virtual Technologies		-		-		-		-
Transportation equipment of Excalibur		-		-		7,034,073		7,034,073
Total assets measured at fair value	$	16,773,970	$	-	$	7,034,073	$	23,808,043

Note 5 - RESTRICTED CASH

On August 20, 2009, Taiwan Taipei district court froze Excalibur’s cash of $193,992 as a result of a lawsuit filed by Marinteknik Shipbuilders (S) Pte Ltd, a Singapore company, against Excalibur in the Taiwan Taichung District Court. The lawsuit claims Excalibur owes service fees and out-of-pocket expenses of $249,731 to Marinteknik Shipbuilder (S) PTE Ltd.

Note 6 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	December 31, 2011			March 31, 2011
Construction in progress	$	916,409		$	980,656
Transportation equipment		11,611,785			11,611,785
Property and plant		103,277			-
Leasehold improvements		518,218			507,831
Automobiles		241,255			239,097
Computer equipment		163,129			162,198
Furniture & fixtures		100,459			93,939
Machinery and equipment		175,719			118,145
		13,830,251			13,713,651
Less: Accumulated depreciation		(5,809,040	)		(4,990,877	)
	$	8,021,211		$	8,722,774

At December 31, 2011, expenditures of $916,409 had been incurred for construction of a factory to produce bottled water in Baiquan, China. Some completed constructions have been transferred to property and plant. As the factory started to produce bottled water in January 2012, the Company will begin depreciating the assets.

Note 7 - LOANS TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

The board of directors of the Company approved a non-interest bearing demand loan in the amount of $1,567,000 on July 25, 2008 to Yeuh-Chi Liu, a vendor to the Company. The $1,567,000 loan was used by Yeuh-Chi Liu to purchase a 3.97% ownership interest in Excalibur, see Note 9, and is collateralized by that interest. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since then. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral.

The Company uses the “EFT” name, a trademark owned and licensed to it by EFT Assets Limited. The Company is required to pay an annual royalty to EFT Assets equal to a percentage of its gross sales for the previous fiscal year. The percentage is 5% for the first $30 million in gross sales, 4% for the $10 million in gross sales in excess of $30 million, 3% for the $10 million in gross sales in excess of $40 million; 2% for the $10 million in gross sales in excess of $50 million; and 1% for the $10 million in gross sales in excess of $60 million. EFT Assets Limited is owned by a number of persons, including Wendy Qin, director of EFT International Ltd. Ms. Qin is the sister of Jack Jie Qin, the Company’s president. During the nine months ended December 31, 2011 and 2010, the Company paid EFT Assets Limited $872,191 and $1,522,251 in royalties, respectively.

The Company rents a 6,500 square foot office space for its satellite training center in Hong Kong. This office is located at Langham Office Tower, 8 Argyle Street, Suite 3706, Kowloon, Hong Kong SAR. The lease for this space commenced on March 31, 2007 and expires on March 31, 2012. The Company intends to renew this lease in February 2012. The leased space is owned by a number of persons, including Wendy Qin, a director of EFT (HK) Ltd and the sister of Jack Qin, the Company’s president. Pursuant to the lease, there is no rent for the first two years. Commencing on the third year of the lease, the monthly rent is $50,000. During the nine months ended December 31, 2011 and 2010, the Company paid the lessor $283,419 and $289,996 in rental expense.

In March 2010, one of the Company’s subsidiaries, EFT International Ltd., entered into a consultancy agreement with JFL Capital Limited, a company in which Wendy Qin, the sister of Jack Jie Qin, our President, serves as a director and is one of the principal shareholders. Under this agreement, EFT International Ltd. engaged JFL Capital Limited to provide EFT International Ltd. consultancy services on administration, financial matters, corporate planning and business development commencing from April 1, 2010. The agreement may be terminated by either party on three months’ written notice. For the year ended March 31, 2011, EFT International Ltd. paid JFL Capital Limited $315,000. As from April 1, 2011, the annual fee will be increased at the rate of $15,000 each year.

Note 8 – INVESTMENT IN DEVELOPMENT IN PROGRESS

On May 2, 2011, Jack Qin, as an agent, entered into agreements to purchase an office building, located in Subsection 3, Tanmei Section, Neihu, Tai Pei. The land use category for the land is the urban planning type three industrial zone, comprising an area of 11,238 ping, or approximately 37,152 square meters. Building construction for the pre-sale building units is under construction and will be completed by the end of 2013. The total purchase price for the office building, which consists of 14 floors and 144 parking spaces, is NTD7.1 billion, approximately $240.8 million. The Company intends to retain one floor of the office building for its own business operation and plans to sell the majority of the remaining floors. On May 31, 2011, the Company’s wholly owned subsidiary, EFT Investment Co. Ltd. (Taiwan), assumed all the rights and obligations under these agreements.

As of December 31, 2011, payment of NTD600 million, approximately $20.7 million, has been made.

Note 9 – EXCALIBUR

On October 25, 2008, the Company through its wholly-owned subsidiary, EFT Investment, acquired a 48.81% equity interest in Excalibur for $19,193,000. The Company initially loaned funds to Excalibur in July 2008 and subsequently has continued to provide Excalibur with loan capital to fund its operations.

As disclosed in Note 7, on July 25, 2008, the Company loaned $1,567,000 to Yeuh-Chi Liu, a vendor to the Company. The proceeds of the loan were used to acquire a 3.97% interest in Excalibur, which was offered as collateral for the loan. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since then. In accordance with ASC 810-10-25-43, the interest in Excalibur held by Yeuh-Chi Liu as a result of the loan made to her by the Company should be treated in the same manner as the Company’s own interest. As a result, the Company has concluded that it effectively held control of Excalibur and has consolidated Excalibur beginning at the time the Company acquired its ownership interest.

The Company consolidates Excalibur based on a three-month lag with the Company’s reporting periods. All inter-company accounts and transactions were eliminated in consolidation. The following table provides a summary of balance sheet information for Excalibur as of September 30, 2011 and 2010, which is consolidated in the Company’s financial statements as of December 31, 2011 and 2010:

	Excalibur International Marine Corporation
	September 30, 2011				September 30, 2010
	NTD*		USD		NTD		USD
Total assets		257,256,784		7,390,830		316,708,895		10,150,054
Total liabilities		408,617,350		13,410,482		404,852,655		12,976,048
Net liabilities		151,360,566		6,019,652		88,143,760		2,825,994
48.81% ownership		73,879,092		2,938,192		43,022,969		1,379,368

*NTD: New Taiwan Dollar

The following is the shareholder list of Excalibur as of December 31, 2011:

Excalibur International Marine Corp. Shareholders’ List
Shareholder’s Name	No. of shares		%
EFT Investment		58,567,750		48.81
Yeuh-Chi Liu		4,766,000		3.97
				52.78
Lu, TsoChun		10,000,000		8.33
Chiao, Jen-Ho		8,200,000		6.83
Lin, Ming-i		5,170,000		4.31
Wang Zhi Yun		5,000,000		4.17
Wen Investment		4,000,000		3.33
Steve Hsiao		3,938,250		3.28
Others		20,358,000		16.97
Total		120,000,000		100

On August 8, 2010, Excalibur’s ship, the OceanLaLa, was damaged when sailing in the Taiwan Strait. As a result of the damage suffered, the OceanLaLa has been taken out of service and management estimated that the net book value of the equipment exceeded its market value and an impairment loss of $5.4 million has been provided for the year ended March 31, 2011.

Additional information concerning Excalibur is included in Notes 13 (Contingent Liabilities) and 18 (Litigation).

Note 10- INVESTMENT IN CTX VIRTUAL TECHNOLOGIES

CTX Virtual Technologies, Inc. (Pink Sheets: CTXV), is a technology company that manufactures and distributes mobile telecommunication, IT data management, virtual imaging and mobile data input accessories.

In July 2010 the Company lent $5,000,000 to CTX Virtual Technologies, Inc. The loan to CTX was unsecured, bore interest at 8% per year and had a term of one year to July 26, 2011. At any time during the one-year term, the Company could, at its option, convert the loan into 8,474,576 units, with each unit consisting of one share of CTX’s common stock and one warrant. Each warrant allows the Company to purchase one additional share of CTX’s common stock at a price of $1.00 at any time on or before June 23, 2015. At any time after January 26, 2011 and before July 26, 2011, CTX could, at its option, cause the loan to be converted into the same 8,474,576 units. If CTX common stock was not listed among the American Stock Exchange, the OTC Bulletin Board or NASDAQ by February 28, 2011, the number of shares of common stock and warrants issuable on conversion of the loan would be increased by 25%.

On March 12, 2011, CTX elected to convert the full principal amount of $5,000,000 into 8,474,576 units and paid the Company in full all accrued and unpaid interest owing. The common stock of CTX common stock was not listed among the American Stock Exchange, the OTC Bulletin Board or NASDAQ by February 28, 2011, the number of shares of common stock and warrants issued on conversion of the loan was increased by 25% to 10,593,220. The common stock of CTX is quoted on the Pink OTC market. On March 31, 2011, the closing market price of CTX common stock, as reported by NASDAQ, was $1.93. However, this company’s common stock is very thinly traded and, as reported by NASDAQ, a total of 174,487 common shares were traded during the year ended March 31, 2011 at an average price, based on reported closing prices, of $1.21. Because of the lack of a sufficiently active market, the Company does not believe that quoted market prices for CTX’s common stock are a reliable indicator of fair value of its investment. Despite repeated inquires and requests to CTX for current financial information that would allow the Company to assess the recoverability of its investment, the Company has not been able to obtain any information to enable it to assess the fair value of this investment. Accordingly, management concluded that it would be prudent to conclude, in the absence of persuasive evidence to the contrary, and in particular, in light of CTX’s refusal to provide the Company with any financial information, that the investment should be considered impaired and therefore the Company has provided an impairment loss of $5,000,000 during the year ended March 31, 2011.

On September 23, 2011, CTX released its audited annual financial results for the year ending December 2010 and its unaudited results for the six month period ending June, 2011. For the year ending December 31, 2010 CTX, reported consolidated revenue of $34.3 million, gross profit of $6.2 million and income from operation of $2.0 million. After various non-operating expenses of $9.2 million and an income tax benefit of $0.7 million, CTX reported a net loss for the year of $6.5 million. For the six-month period ended June 30, 2011, CTX reported consolidated revenue of $17.2 million, gross profit of $2.9 million and income tax expense, CTX reported net income for the six-month period of $0.8 million.

The financial statements of CTX for the year ended December 31, 2010 and the six months ended June 30, 2011 state that there were 7,970,817 and 7,976,208 common shares outstanding, respectively. It is assumed that this disclosure at June 30, 2011 does not include the 10,593,220 common shares issued to us on conversion of our loan in March 2011. Although we would appear to have a majority of the common stock outstanding, CTX also has outstanding a class of preferred stock that has super-majority voting rights. As a result, we do not control CTX. In addition, CTX has outstanding a class of preferred stock that has a liquidation preference that substantially exceeds CTX’s reported net book value.

On December 31, 2011, the closing market price of CTX common stock, as reported by NASDAQ, was $1.07 per share, based on a trade of 100 shares on December 14, 2011. Prior to that trade, the closing market price of CTX common stock, as reported by NASDAQ, was $1.50 per share. This company’s common stock continues to be very thinly traded and, as reported by NASDAQ, a total of 58,808 common shares were traded during the nine months ended December 31, 2011 at an average price, based on reported closing prices, of $1.48. Because of the lack of a sufficiently active market, the Company does not believe that quoted market prices for CTX’s common stock are a reliable indicator of the fair value of our investment.

The Company may seek to recover a portion of its investment through the sale of common stock in the open market. However, because of the size of the Company’s position in relation to the market, the Company does not expect to be able to recover any significant portion of its investment in the foreseeable future.

Note 11 - OTHER LIABILITIES

Other liabilities consist of the following:

	December 31, 2011		March 31, 2011

Payroll liabilities	$	69,679	$	35,834
Warranty liabilities		12,188		88,784
Accrued expenses		563,084		88,353
Others		35,583		91,058
	$	680,534	$	304,029

The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its limited warranty. Changes in the warranty liability for standard warranties which are included in current liabilities on the Company’s Consolidated Balance Sheets are presented in the following tables:

	December 31, 2011			March 31, 2011
Warranty liability as at beginning of period, current	$	88,784		$	43,346
Cost accrued/(reversal) of costs		(69,057	)		59,312
Service obligations honored		(7,539	)		(13,874	)
Warranty liability as at end of period, current	$	12,188		$	88,784

Note 12 – DUE TO RELATED PARTIES

		December 31, 2011				March 31, 2011
Amount due to related parties:		$	45,947			$	47,995

The above amounts are due to Steve Hsiao, a shareholder of Excalibur.

Note 13 - CONTINGENT LIABILITIES

The Company’s controlled subsidiary, Excalibur, purchased the vessel “OceanLaLa” from a British Virgin Islands, “BVI,” company, Ezone Capital Co. Ltd., in 2008. The purchase price was NTD708,000,000, equivalent to approximately $24,583,333. The vessel was delivered to Excalibur and registered as owned by Excalibur at the end of 2008. The last payment of NTD77,840,000, equivalent to approximately $2,554,644, is still under dispute as Excalibur believes that certain special equipment relating to the OceanLaLa, including special tooling, was not delivered at the time of sale and that one of the Ezone’s directors did not act in good faith and was involved in self-dealing.

Gu Zong-Nan, former vice general manager of Excalibur, filed a lawsuit against Excalibur in the Taiwan Shihlin District Court on June 2, 2009, claiming unpaid salary. The court found that there was a valid agreement between both parties. In addition, it was determined that the agreement provided that the salary accrued for Gu Zong-Nan was not required to be paid until Excalibur made a profit from its business operations. Although Excalibur has not been profitable since its inception, a contingent liability of NTD1,050,000, equivalent to approximately $34,460, was recorded in connection with the above-mentioned lawsuit.

Note 14 – STOCKHOLDERS’ EQUITY

Common stock

As of December 31, 2011, the Company had 4,975,000,000 shares of common stock authorized and 75,983,201 shares issued and outstanding.

The Company did not issue any shares of common stock during the nine months ended December 31, 2011.

Warrants

Between January and August 2008, the Company sold 14,890,040 Units to non-U.S. residents at a price of $3.80 per Unit. Each Unit consisted of one share of the Company’s common stock and one warrant. Each warrant allows the holder to purchase one share of the Company’s common stock at a price of $3.80 per share at any time prior to November 30, 2010. 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 the value of the warrants in additional paid in capital.

On September 2, 2010, the Company’s board of directors resolved to extend the expiration date of the warrants to November 30, 2011. The warrants have expired during the nine months ended December 31, 2011.

As of December 31, 2011, the Company’s subsidiary Digital Development Partners Inc. has 2,000,000 common stock warrants outstanding, and 330,665 Series A and 330,665 Series B warrants outstanding, which are accounted for as equity instruments. The 2,000,000 warrants will expire on June 1, 2014 and permit the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share. The Series A and Series B warrants will expire on September 30, 2014 and permit the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share and $1.25 per share, respectively.

Note 15 - INCOME TAXES

The Company was incorporated in the U.S and has operations in four tax jurisdictions - the United States, the Hong Kong Special Administrative Region, “HK SAR,” Taiwan, and the BVI.

The Company generated substantially all of its net income from its BVI operations for the nine months ended December 31, 2011. According to BVI tax law this income is not subject to any taxes.

The Company’s HK SAR subsidiaries are subject to a 16.5% profit tax based on its taxable net profit. EFT (HK) Ltd provides management service to a BVI subsidiary, and the BVI subsidiary reimburses EFT HK Ltd for its total operating expenses plus 5% mark up, and the income is subject to 16.5% profit tax. The deferred tax assets for the Company’s US operations and HK SAR subsidiaries were immaterial for the nine months ended December 31, 2011.

The Company’s Taiwanese subsidiary, Excalibur, is subject to a 17% standard enterprise income tax based on its taxable net profit. Excalibur has incurred net accumulated operating losses for income tax purposes and believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, it has provided full valuation allowance for the deferred tax assets arising from the losses as of December 31, 2011 and 2010.

The income tax expenses consist of the following:

	Nine Months Ended December 31,
	2011			2010
Current:
Domestic	$	-		$	2,400
Foreign		-			-
Under/(over)-provision for prior years		(64,900	)		143,539
Deferred		-			-
Income tax expenses/(benefit)	$	(64,900	)	$	145,939

A reconciliation of income taxes, with the amounts computed by applying the statutory federal income tax rate, 37% for the nine months ended December 31, 2011 and 2010, to income before income taxes for the nine months ended December 31, 2011 and 2010, is as follows:

	Nine Months Ended December 31,
	2011			2010

Income tax at U.S. statutory rate	$	1,618,399		$	(1,464,779	)
State tax		-			145,939
Indefinitely invested earnings/(incurred losses) of foreign subsidiaries		(1,657,672	)		1,435,363
Nondeductible expenses		39,273			29,416
Over-provision for prior years		(64,900	)		-
Income tax expenses/(benefit)	$	(64,900	)	$	145,939

The Company does not have any uncertain tax positions. In accordance with ASC Topic 740, 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. For the nine months ended December 31, 2011, due to amendment of 2007 tax return, approximately $97,000 was provided for related interest and penalties expenses.

Note 16 - COMMITMENTS

Executive Offices

The Company leases 3,367 square feet of space in California that serves as its principal executive offices. The lease will expire in February 2013. The monthly rent for the fiscal years ended March 31, 2011, 2012 and 2013 is $9,090, $9,454 and $9,832, respectively. The future minimum lease payments under the operating lease are as follows:

Year Ending March 31,

2012	$	28,362
2013		108,152

The Company rents office space for its satellite training center in Hong Kong. The lease provides for free rent in the first two years and monthly lease payments of approximating $50,000 starting from the beginning of the third year and has expired on March 31, 2012. The lease term has been extended for another three years and expiring on March 31, 2015, with a monthly rental of $30,900. The future minimum lease payments under the operating lease are as follows:

Year Ending March 31,

2012	$	90,000
2013		371,134
2014		371,134
2015		371,134

The Company rents storage space for its satellite training center in Hong Kong. The lease provides for monthly lease payments approximating $900 starting on January 4, 2011 and expiring on January 3, 2013. The future minimum lease payments under the operating lease are as follows:

Year Ending March 31,

2012	$	2,700
2013		8,100

Total rent expenses for the nine months ended December 31, 2011 and 2010 were $464,683 and $549,808 respectively.

Employment Agreements

Jack Jie Qin

On January 1, 2009, the Company entered into an employment agreement with Jack Jie Qin, the Company’s President and Chief Executive Officer. The employment agreement has an initial term of seven years, and will be automatically extended, without any action on the part of Mr. Qin or the Company, for additional, successive one-year periods. The agreement may be terminated by either party on 60 days’ written notice.

During the initial seven year period of the agreement, the Company will pay Mr. Qin an annual base salary of $200,000 per year for the first calendar year. In each subsequent calendar year during the term of the agreement, the Company will pay Mr. Qin an annual base salary determined by the compensation increase scale as reviewed and approved by the Company’s Board of Directors Compensation Committee and approved by the Company’s Board of Directors. Mr. Qin is eligible to receive an annual base salary adjustment in each subsequent calendar year as a cost of living increase at 10% per annum. Mr. Qin is also eligible to receive an annual bonus pursuant to the executive bonus scale in effect for executive employees of the Company.

Pursuant to the terms of the original employment agreement, Mr. Qin’s tenure has been extended for a term of one year without any cost of living adjustment.

Mr. Qin’s employment agreement also specifies that he is entitled to a minimum of two weeks of paid vacation per year and insurance and other benefits customarily provided to the Company’s executives. In the event that Mr. Qin’s employment is terminated without cause by the Company or if Mr. Qin terminates the agreement for good reason, or if, following a change in control, Mr. Qin’s employment is terminated or not renewed, the Company has agreed to pay Mr. Qin an amount equal to twice the total of his annual base salary and his target bonus as established by the Compensation Committee and to maintain his benefits for a period of two years. At the expiration of the initial term of the agreement or any successive one-year renewal period, if the Company elects not to renew the agreement, the Company has agreed to pay Mr. Qin an amount equal to the total of his annual base salary and his target bonus as established by the Compensation Committee and to maintain his benefits for a period of one year.

Pyng Soon

On January 1, 2012, the Company entered into a new employment agreement with Pyng Soon, the Company’s General Counsel. The employment agreement has a term for one year, and will be subject to negotiation by both parties for additional one year. The agreement may be terminated by either party on 30 days’ written notice.

During the period of this agreement, the Company will pay Mr. Soon an annual base salary of $148,830 per year. Mr. Soon is also eligible to receive an annual bonus pursuant to the executive bonus scale in effect for executive employees of the Company. Mr. Soon’s employment agreement also specifies that he is entitled to a minimum of three weeks of paid vacation per year and insurance and other benefits customarily provided to the Company’s executives.

Consultancy Agreement

Purchase obligation

The Company’s wholly owned subsidiary, EFT Investment Co. Ltd, has entered into agreements to purchase an office building located in Taipei, Taiwan. The office building is under construction and will be completed by the end of 2013. The total purchase price for the office building is NTD7.1 billion, equivalent to approximately $240.8 million.

Pursuant to the terms of these agreements, the Company was obliged to pay the remaining twelve (12) outstanding installments with various amounts due over the next twenty-four (24) months until the completion of the building project. The latest payment, in the amount of approximately $13 million, was due on January 20, 2012, was suspended (see Note 18 for further information). Pursuant to the provisions of the agreement, each subsequent quarterly payment, starting from April 20, 2012, was approximately $4 million. Finally, the residual payment of approximately $167 million was due at the time of completion of the building.

If the Company breaches any provisions relating to the terms and method of payment stated in the agreement, the seller may confiscate an amount calculated as 15 percent of the total real estate price, approximately $36.1 million, If the amount to be confiscated exceeds the amount of the price already paid, it shall be limited to the amount of the price already paid, and the parties may be discharged from the agreement. As of December 31, 2011, payment of NTD600 million, equivalent to approximately $20.7 million, has been made to the seller.

Note 17 – SEGMENT INFORMATION

The Company’s business is classified by management into two reportable segments: transportation business and online business. The online business reportable segment is an aggregation of the Company’s online operating segments, which are organized to sell the Company’s products to Affiliates through its website. The online business reportable segment derives revenue from the sales of nutritional products, personal care products and EFT-phones. The transportation service reportable segment derives revenue from transport passengers and cargo between Taiwan and Mainland China through the Taiwan Strait.

While substantially all of the Company’s revenue is generated from Mainland China, the Company is organizationally structured along business segments. The accounting policies of each of the Company’s operating segments are the same as those described in Note 3, “Summary of Significant Accounting Policies.”

The following tables provide the business segment information as of and for the periods ended December 31, 2011 and 2010. Income tax allocations have been determined based on statutory rates in the applicable business segment.

	Three months ended December 31, 2011
	Online business			Transportation business			Total
Sales revenues/(expense), net	$	1,163,932		$	(4	)	$	1,163,928
Cost of goods sold		(406,794	)		(284,656	)		(691,450	)
Gross profit/(loss)		757,138			(284,660	)		472,478
Operating expenses:
Selling, general and administrative expenses		1,504,934			611,567			2,116,501
Marketing expenses		115,398			-			115,398
Royalty expenses		157,790			-			157,790
Total operating expenses								2,389,689
Net operating loss		(1,020,984	)		(896,227	)		(1,917,211	)
Other income								30,219
Loss before income tax								(1,886,992	)

Total long-lived assets		1,546,447			6,474,764			8,021,211

Additions to long-lived assets		100,114			-			100,114

	Three months ended December 31, 2010
	Online business			Transportation business			Total
Sales revenues, net	$	4,160,577		$	81,329		$	4,241,906
Cost of goods sold		(2,228,801	)		(451,326	)		(2,680,127	)
Gross profit/(loss)		1,931,776			(369,997	)		1,561,779
Operating expenses:
Selling, general and administrative expenses		1,547,894			285,216			1,833,110
Marketing expenses		299,374			-			299,374
Impairment loss of loan receivable		-			1,567,000			1,567,000
Impairment loss of transportation equipment		-			1,164,091			1,164,091
Royalty expenses		502,566			-			502,566
Total operating expenses								5,366,141
Net operating loss		(418,058	)		(3,386,304	)		(3,804,362	)
Other income								547,640
Loss before income tax								(3,256,722	)

Total long-lived assets		1,497,187			8,162,804			9,659,991

Additions to long-lived assets		125,489			1,408			126,897

	Nine months ended December 31, 2011
	Online business		Transportation business			Total
Sales revenues, net	$	14,770,488	$	1,020		$	14,771,508
Cost of goods sold		3,307,581		838,963			4,146,544
Gross profit/(loss)		11,462,907		(837,943	)		10,624,964
Operating expenses:
Selling, general and administrative expenses		4,554,619		1,437,255			5,991,874
Marketing expenses		223,393		-			223,393
Royalty expenses		872,191		-			872,191
Total operating expenses							7,087,458
Net operating income/(loss)		5,812,704		(2,275,198	)		3,537,506
Other expenses							(459,107	)
Income before income tax							3,078,399

Total long-lived assets		1,546,447		6,474,764			8,021,211

Additions to long-lived assets		178,060		-			178,060

	Nine months ended December 31, 2010
	Online business		Transportation business			Total
Sales revenues, net	$	13,463,613	$	139,113		$	13,602,726
Cost of goods sold		5,615,435		2,273,975			7,889,410
Gross profit/(loss)		7,848,178		(2,134,862	)		5,713,316
Operating expenses:
Selling, general and administrative expenses		4,785,520		780,330			5,565,850
Marketing expenses		853,133		-			853,133
Impairment loss of loan receivable		-		1,567,000			1,567,000
Impairment loss of transportation equipment		-		5,364,091			5,364,091
Royalty expenses		1,522,251		-			1,522,251
Total operating expenses							14,872,325
Net operating income/(loss)		687,274		(9,846,283	)		(9,159,009	)
Other income							1,202,682
Loss before income tax							(7,956,327	)

Total long-lived assets		1,497,187		8,162,804			9,659,991

Additions to long-lived assets		321,281		1,408			322,689

Note 18 – LITIGATION

In October 2008, the Company acquired, through a wholly-owned subsidiary, 48.81% of the capital stock of Excalibur International Marine Corporation, a Taiwanese corporation, for $19,193,000. Excalibur owns a high speed ship which, until August 2010, transported passengers and cargo between Taiwan and mainland China through the Taiwan Strait. Excalibur’s ship, the OceanLaLa, was capable of carrying up to 370 passengers and 630 tons of cargo.

Excalibur purchased the OceanLaLa from Ezone Capital Co. Ltd., prior to its acquisition by the Company. The last payment of NTD77,840,000, equivalent to approximately $2,702,778, was withheld by Excalibur since Excalibur believed that special tooling was not delivered at the time of sale and that an Ezone’s director did not act in good faith and was involved in self-dealing.

EFT Investment Co. Ltd. filed a lawsuit against Jiao Ren-Ho, former chairman of Excalibur, in the Taiwan Shihlin District Prosecutors office on February 12, 2010. EFT Investment Co. Ltd. alleges, among other things, that Jiao Ren-Ho committed the offences of capital forging, fraud, breach of trust, and document fabrication. On July 25, 2011, the attorney general of Shihlin District remanded the case to district attorney for further investigation. The case is still pending.

EFT Investment Co. Ltd. filed a lawsuit against Chang Hui-Ying, Excalibur’s former accountant in the Taiwan Shihlin District Prosecutors office in March 2010. The claims of EFT Investment Co. Ltd. against Chang Hui-Ying are based upon the audit of Excalibur’s financial statements by Chang Hui-Ying. EFT Investment Co. Ltd. alleges, among other things, that Chang Hui-Ying committed the offences of capital forging, fraud, breach of trust, and document fabrication. On July 25, 2011, the attorney general of Shihlin District remanded the case to district attorney for further investigation. The case is still pending.

EFT Investment Co. Ltd. filed a lawsuit against Hsiao Zhong-Xing, former general manager of Excalibur, and Lu Zhuo-Jun, former vice general manager of Excalibur, collectively "Defendants,” in the Taiwan Shihlin District Prosecutors office on October 1, 2010. EFT Investment Co. Ltd. alleges, among other things, that Defendants committed the offences of capital forging, fraud, breach of trust, and document fabrication. On June 24, 2011, the district attorney of Shihlin District prosecuted both Hsiao Zhong-Xing and Lu Zhuo-Jun for the offences of capital forging, fraud, breach of trust and document fabrication. The case is still pending.

EFT Investment Co. Ltd. filed a civil lawsuit against Jiao Ren-Ho, Chang Hui-Ying, Hsiao Zhong-Xing, and Lu Zhuo-Jun, collectively “Defendants,” in the Taiwan Shihlin District court on February 12, 2010. EFT Investment Co. Ltd. alleges Defendants committed tortuous acts, including but not limited to the offences of capital forging, fraud, breach of trust and document fabrication. The final resolution of this case is pending.

Gu Zong-Nan, former vice general manager of Excalibur, filed a lawsuit against Excalibur in the Taiwan Shihlin District Court on June 2, 2009, claiming unpaid salary and severance payments. In April 2010, the Taiwan Shihlin District Court denied the claims as the court found that there was a valid agreement between both parties. In addition, it was determined that the agreement provided that the salary accrued for Gu Zong-Nan would not be paid until Excalibur made a profit from its operations and that Gu Zong-Nan held a managerial position in Excalibur and as a result was not entitled to any severance payment according to the Labor Standard Law of Taiwan. Excalibur has suffered net losses since inception, however, a contingent liability for the unpaid salary remains.

Marinteknik Shipbuilders (S) Pte Ltd., a Singapore company, filed a lawsuit against Excalibur in the Taiwan Taichung District Court on July 9, 2009 for unpaid service fees and out-of-pocket expenses of NTD8,050,832, equivalent to approximately $280,000. On August 20, 2009, the Taiwan Taipei district court froze Excalibur’s cash of $193,992 in response to the suit. The final resolution of this case is pending. However, a contingent liability for the restricted cash has remained.

Jiao Ren-Ho, former chairman of Excalibur, filed a lawsuit against Excalibur in the Taiwan Shihlin District Court claiming Excalibur’s special meeting of shareholders held on January 12, 2010, and the actions taken at the meeting, including the removal of Mr. Jiao as an officer and the chairman of Excalibur, were unlawful. Monetary damages were not claimed in the suit. On October 12, 2010, the Shihlin District Court rendered its judgment in favor of Excalibur, ruling that Excalibur’s special meeting of shareholders held on January 12, 2010 and the actions taken at the meeting, including the removal of Mr. Jiao as an officer and the chairman of Excalibur, were lawful. Subsequently, Mr. Jiao has filed an application to the Court of Appeal in Shihlin District Court to review the lower court’s decision. On July 20, 2011, the Court of Appeal in Shihlin District Court sustained the lower court’s decision. Nevertheless, Mr. Jiao filed and submitted the Appellate Court’s decision to the higher court on August 15, 2011. On October 13, 2011, the higher court rejected Mr. Jiao’s submission and ruled in favor of Excalibur. The judgment rendered by the higher court is the final verdict.

On August 2, 2010 the Company commenced a legal proceeding against Marinteknik Shipbuilders (S) Pte Ltd., and three other persons in the High Court of the Republic of Singapore alleging fraud, misrepresentation, and deceit on the part of the defendants with respect to Excalibur’s purchase of the OceanLaLa. The Company claims that the wrongful actions of the defendants resulted in damages of $19,000,000 to the Company. The case is still pending.

On August 18, 2010 Excalibur received a statement of claim, equivalent to a complaint in the United States, from Ezone Capital Co., Ltd., demanding approximately 2,000,000 Euros, equivalent to approximately $2,900,000, for the unpaid balance of the purchase price of the OceanLaLa (see Note 13). Excalibur has denied the claims of Ezone on the basis that the OceanLaLa was defective, unseaworthy, and not fit for its intended purpose. Excalibur has also filed a counterclaim against Ezone seeking a full refund of all amounts paid for the OceanLaLa, as well as reimbursement for amounts incurred in maintenance and repairs. The case proceeding is concluded and waiting for the disposition by the Tribunal.

Note 19 - SUBSEQUENT EVENTS

Taiwan Building

On May 2, 2011, Jack Qin, as an agent, entered into two series of agreements, one series with Meifu Development Co., Ltd. (“Meifu”) and the other series with TransGlobe Life Insurance Inc. (“TransGlobe”), to purchase an office building located in Taipei, Taiwan (the “Taiwan Building”). The Taiwan Building consists of 14 floors and 144 parking spaces. The agreements signed with Meifu concerned the purchase of the 8^th-14^th floors, 1 out of 2 units on the 7^th floor and 79 parking spaces, while the agreements signed with TransGlobe were for the purchase of the 1^st-6^th floors, the other unit on the 7^th floor and the remaining 65 parking spaces in the Taiwan Building. The Taiwan Building is under construction and will be completed by the end of 2013. The total purchase price for the Taiwan Building is approximately $237.1 million. The Company intended to retain one floor of the Taiwan Building for its own business operation and planned to sell the majority of the remaining floors. As of the date of this filing, the Company’s Board has not approved the purchase of the Taiwan Building.

On July 1, 2011 and July 7, 2011, EFT Investment Co. Ltd. (“EFT Investment”), a wholly-owned subsidiary of the Company, as a party to the contract in place of Jack Qin, entered into two sets of agreements (the “July 2011 Agreements”) with the sellers of the Taiwan Building that provided for substantially the same rights and obligations as the original May 2, 2011 agreements. Pursuant to the terms of the July 2011 Agreements, EFT Investment was obliged to pay the remaining twelve outstanding installments with various amounts due up to the scheduled completion of the Taiwan Building. Each subsequent quarterly payment, starting from April 20, 2012, was approximately $4 million. Finally, the residual payment of approximately $163.6 million was due at the time of completion of the Taiwan Building. EFT Investment had paid approximately $21 million toward the purchase price as of March 31, 2012.

The payments due to Meifu and TransGlobe under the July 2011 Agreements were suspended by EFT Investment due to, among other things, the failure of Meifu and TransGlobe to comply with certain conditions precedent applicable to the agreements and the Company’s belief that Meifu and TransGlobe had committed fraud on EFT Investment in the deliberate non-disclosure of information during the course of the transactions.

On June 15, 2012, EFT Investment received a letter (the “Meifu Letter”) from Meifu wherein Meifu served notice of termination (as of that date) of its contracts with EFT Investment for the purchase of the Taiwan Building and a purported forfeiture of EFT Investment’s deposit of approximately $16.7 million (the “Deposit”). Subsequently, on June 29, 2012, EFT Investment’s local counsel issued a letter to Meifu alleging fraud and misrepresentation by Meifu during the course of the transactions. EFT Investment contended that the Meifu Letter and the purported termination of contracts between Meifu and EFT Investment were invalid and demanded the return of the Deposit and construction advances. On July 3, 2012, EFT Investment’s local counsel issued a letter to TransGlobe, with substantially the same contentions as contained in the June 29, 2012 letter to Meifu, and argued that the contracts between TransGlobe and EFT Investment were terminated and requested that all payments made to TransGlobe be returned.

Network Access Rights

On April 1, 2012, the Company assigned the network access rights to ToByTo Limited and eZGT Limited. The network access rights to these companies include the right to access EFT’s affiliate database for each company’s respective marketing campaigns, and provide access to EFT’s e money system to facilitate their sales activities. These companies, in return, compensate EFT by paying an access fee in an amount equal to 10% of the respective enrollment fee of every affiliate who enters the 2By2 and eZGT travel program each time (but not less than $300 per affiliate).

PART II

ITEM 2.

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

Products

The Company sells 27 different nutritional products, some of which are oral sprays; 21 different personal care products; an environmentally protective automotive product, an environmentally friendly house cleaner and a flip top portable drinking container which contains a filter to remove impurities from the water. The Company’s products are biodegradable and are not regulated by federal, state or local environmental laws or environmental laws of its key target markets.

The Company’s nutritional products are non-pharmaceutical nutritional products. They are ingestible through oral liquids, oral sprays, tablets and tea. The Company’s oral sprays are delivered through very fine mist sprayed directly into the mouth. The Company’s containers used to deliver its nutritional products are small, compact and easy to carry.

The Company’s nutritional products are all natural, made from pure ingredients, and are designed to address specific goals of the user such as strengthening the immune system, assisting in weight loss, helping to overcome a sore throat and fighting off colds. Each product has been formulated to address specific need, symptom and condition. The Company makes no claims as to the products curing any medical condition, or preventing any medical ailment.

The Company’s personal care products include lip gloss, perfume, mascara, eyeliner and sunscreen.

Sales

The Company only sells its products through its website and only to “Affiliates.” To become an Affiliate, a customer must be recommended by another Affiliate, make a minimum purchase of $600, and pay $60 for shipping and handling fees. After that point, the new Affiliate is not required to make any additional purchases, pay membership fees, buy products, resell products, recruit others, or attend meetings. Free educational classes are offered to the Company’s Affiliates so they can learn more about its products and how to use them.

As of July 4, 2012, the Company had 1,249,271 registered Affiliates, most of which were located in China and Hong Kong. For the nine months ended December 31, 2011, the Company did not have any sales activities in the United States. None of the Company’s Affiliates account for a significant portion of the Company’s business.

The Company pays its Affiliates a commission on the products they order from the Company. The commission is approximately 60% of the total dollar amount of the order. Commissions are considered a reduction of the sales price of the Company’s products and are reflected in the Company’s financial statements as a reduction in revenue. The commissions earned by each Affiliate are held in book entry form. The Affiliate can use the commissions in his or her account to pay for new orders or can transfer the commissions to a bank account where they can be withdrawn, in local currency, at automated teller machines (ATMs) in the country where the Affiliate resides. With this process, the Company reduces operating expenses and eliminates cumbersome accounting chores such as issuing checks and reconciling bank statements.

Full payment is required in U.S. Dollars prior to shipment of any products. In most cases, once payment is received, products ordered are shipped directly by the Company’s third party manufacturers to the Company’s distribution centers in Hong Kong, China and Korea. Once received at the distribution centers, the products are shipped to the Affiliate placing the order.

Transportation business

On October 25, 2008, the Company acquired, through a wholly owned subsidiary, 48.81% of the capital stock of Excalibur International Marine Corporation, “Excalibur”, a Taiwanese corporation, for $19,193,000. The remaining 51.19% equity interest is held by Taiwan residents. On July 25, 2008, the Company loaned $1,567,000 to Yeuh-Chi Liu, a vendor to the Company. The proceeds of the loan were used by Yeuh-Chi Liu to acquire a 3.97% interest in Excalibur, which was offered as collateral for the loan. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral.

Excalibur owns and operates a high speed ship which, until August 2010, transported passengers and cargo between Taiwan and mainland China through the Taiwan Strait. Excalibur’s ship, the OceanLaLa, was capable of carrying up to 370 passengers and 630 tons of cargo. The OceanLaLa made its first voyage in October 2008, sailing from Taichung to Panhu, Taiwan. On August 8, 2010, the OceanLaLa was damaged when sailing in the Taiwan Strait. As a result of the damage suffered, the OceanLaLa has been taken out of service.

Historically, Taiwan Vessel Law provided for certain Taiwanese shareholding requirements for companies owning ships registered in Taiwan. For example, a limited liability company owning a ship registered in Taiwan, not operating international liners, like Excalibur, was required to have at least 2/3 of its capital stock owned by Taiwanese citizens, but violation of which was not subject to fines and/or other penalties. The Vessel Law was amended in December 2010, and after the amendment, no more than 50% of the capital stock of limited liability companies owning ships registered in Taiwan, like Excalibur, can be owned by non-Taiwanese citizens. Therefore, the Company’s ownership in Excalibur is no longer required to be reduced to 33%, and the Company’s ownership of 48.81% of the capital stock of Excalibur is in compliance with applicable law in Taiwan.

EFT-Phone

In February 2010 the Company assigned the worldwide distribution and servicing rights to a product known as the “EFT-Phone” to Digital Development Partners, Inc., a previously unrelated company, in exchange for 79,265,000 shares of Digital’s common stock. The shares the Company acquired represent approximately 92% of Digital’s outstanding common stock.

The EFT-Phone is a cell phone which uses the Android operating system, which is a different system from the Microsoft operating system. The EFT-Phone has an application that will allow the Company’s Affiliates to access all of their back office sites, including their commission accounts, through which the Affiliates will be able to deposit, withdraw and transfer money to another account or to another Affiliate at no cost. The EFT-Phone will have educational applications and PowerPoint presentation capability for recruiting and training new Affiliates anywhere in the world.

The worldwide distribution and servicing rights to the EFT-Phone include the right to sell the EFT-Phone to the Company’s Affiliates and others. Digital also acquired the rights to distribute all EFT-Phone accessories. Digital began distributing EFT-Phones in July, 2010.

Market Environment

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 the Company does. Continued advancement in technology and increasing access to that technology is paving the way for growth in direct marketing. The Company also faces 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 the Company has. Notwithstanding the foregoing, the Company believes that it is well-positioned within the Asian consumer market with its current plan of supplying U.S. merchandise brands to consumers and that its exposure to both the Asian and American cultures gives it a competitive advantage. There is no assurance that the Company will maintain its competitive edge or that the Company will continue to provide solely U.S.-made merchandise.

The Company’s 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 the Company’s major markets. The current worldwide recession is expected to adversely affect the Company’s sales and liquidity for the foreseeable future. Although the Company has mitigated decreases in sales by lowering its levels of inventory to preserve cash on hand, the Company does not know when the recession will subside and when consumer spending will increase from its current depressed levels. Even if consumer spending increases, the Company is not sure when consumer spending increase for its products which will affect its liquidity.

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, and which may affect adversely spending on nutritional and beauty products and other discretionary items, such as the Company’s products. In addition, reduced consumer spending may force the Company and its competitors to lower prices. These conditions may adversely affect the Company’s revenues and profits.

Results of Operations

Material changes in the Company’s Statement of Operations for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 are discussed below:

Item	Increase (I) or Decrease (D)	Reason
Sales revenue, net	D	The Company increased its cost to become an affiliate from $300 to $600 effective April 2011. As a result, sales demand dropped significantly.

Shipping charges	D	Mainly attributable to decrease in gross sales of products.

Cost of goods sold	D	Gross sales of EFT phone reduced by 99% from $1,078,500 to $12,430, cost of sales of EFT phone also reduced by 99% from $505,032 to $4,905 due to change in phone promotional plan. Percentage of cost of goods sold for products decreased from 14% to 8% for the same period last year, as gross sales of products decreased by 62% from $8,229,307 to $3,143,360, and cost of sales of product reduced further by 78% from $1,191,884 to $256,085 due to different products being ordered by Affiliates.

Shipping cost	D	Decrease in purchases during the year.

Operating costs – Excalibur	D	On August 8, 2010, OceanLaLa, the ship owned by Excalibur, was damaged when sailing in the Taiwan Strait. As a result of the damage, the OceanLaLa has been taken out of service. The Company currently only keeps four crew members on the ship and incurred limited maintenance cost during the period ended December 31, 2011, while the OceanLaLa maintained fourteen crew members during the same period last year.

Gross Profit as a % of total revenue	D	Gross profit, as a ratio to total revenue, was 41% during the current period compared with 37% during the prior period. The main reasons for the decrease in gross profit were due to significant reduction in gross sales of products in the current period.

Selling, general and administrative expenses	I	Increase in legal fees paid during current period for arbitration proceeding for Excalibur.

Impairment loss of transportation equipment	D	Last year, the net book value of transportation equipment, the OceanLaLa, exceeded its market value after damage.

Impairment loss of loan receivable	D	Last year, the Company determined that the third party to whom the Company made the loan would be unable to repay the loan.

Marketing expenses	D	Decrease in commission.

Royalty expenses	D	Royalty payable to EFT Assets was equal to a percentage of the Company’s gross sales based on certain threshold criteria. A decrease in gross sales led to a reduction of royalty expenses.

Interest income	D	Interest income declined in the current period as the Company liquidated a portion of its securities available for sale to fund operations.

Foreign exchange loss	I	Changes in foreign exchange rates.

Material changes in the Company’s Statement of Operations for the nine months ended December 31, 2011 compared to the nine months ended December 31, 2010 are discussed below:

Item	Increase (I) or Decrease (D)	Reason
Sales revenue, net	I	Sales were recorded net of commissions. The Company paid commission to Affiliates responsible for sales upon receipt of sales orders before revenue could be recognized. An increase in sales revenue was due to the fact that the undelivered orders of approximately $10 million as of March 31, 2011 were delivered and recognized as revenue during the period ended December 31, 2011. In addition, the commission related to the above-mentioned undelivered orders has been expensed and was set off against the revenue reported for the period ended March 2011.

Shipping charges	D	Mainly attributable to decrease in gross sales of products.
Cost of goods sold	D	Gross sales of EFT phone reduced by 72% from $1,191,900 to $331,975, cost of sales of EFT phone was reduced by 71% from $578,002 to $167,950. Percentage of cost of goods sold for products decreased slightly from 13% to 12% for the same period last year, as gross sales of products decreased by 36% from $26,757,883 to $17,111,834, and cost of sales of product reduced further by 43% from $3,520,655 to $2,000,870.
Shipping cost	D	Decrease in purchases during the year.
Operating costs – Excalibur	D	As a result of the damage, the OceanLaLa has been taken out of service. The Company currently only keeps four crew members on the ship and incurred limited maintenance cost during the period ended December 31, 2011, while the OceanLaLa maintained fourteen crew members during the same period last year.

Gross Profit as a % of total revenue	I	Gross profit, as a ratio to total revenue, was 72% during the current period compared with 42% during the prior period. The main reasons for the increase in gross profit were the 37.5% decrease in gross sales compensated by 75% reduction in commission payout to Affiliates.
Selling, general and administrative expenses	I	Increase in legal fees paid for arbitration proceeding for Excalibur.
Impairment loss of transportation equipment	D	Last year, the net book value of transportation equipment, the OceanLaLa, exceeded its market value after damage.
Impairment loss of loan receivable	D	Last year, the Company determined that the third party to whom the Company made the loan would be unable to repay the loan.

Marketing expenses	D	Decrease in commission.

Royalty expenses	D	Royalty payable to EFT Assets was equal to a percentage of the Company’s gross sales based on certain threshold criteria. A decrease in gross sales led to a reduction of royalty expenses.

Interest income	D	Interest income declined in the current period as the Company liquidated a portion of its securities available for sale to settle intercompany loans and to fund operations.

Foreign exchange loss	I	Changes in foreign exchange rates.

Capital Resources and Liquidity

The following table shows the Company’s sources/(uses) of its cash for the nine months ended December 31, 2011 and 2010.

	Nine Months Ended December 31,
	2011			2010
Net cash provided by/(used in) operating activities	$	(8,257,325	)	$	347,941
Net cash used in investing activities		(14,931,889	)		(2,190,091	)
Effect of exchange rate changes on cash		1,046,559			(73,772	)
Net decrease in cash	$	(22,142,655	)	$	(1,915,922	)

The cash and cash equivalents and securities available for sale are the Company’s primary sources of liquidity. The Company believes its existing cash and cash equivalents will be sufficient to maintain its operations at the present level for at least twelve months. The Company further believes that, if necessary, it could obtain additional borrowings at prevailing market interest rates to fund its growth objectives.

Operating activities

For the nine months ended December 31, 2011, the Company recorded a profit of $3,143,299, yet used $8,257,325 in its operating activities. The primary reason was that, during this period, the Company recognized approximately $8,400,000 of unearned revenue and returned $3,700,000 e-money to Affiliates but the corresponding cash had been received and recorded at March 31, 2011.

For the nine months ended December 31, 2010, net cash used in operating activities was $347,941. This was primarily due to a net loss of $8,102,266, adjusted by non-cash related expenses that included depreciation and amortization of $978,913, realized gain on available for sale securities of $116,239, realized gain on held-to-maturity securities of $243,855, impairment loss of $1,567,000 on loan receivable, impairment loss of $5,364,091 on equipment, and a net increase in working capital items of $890,672.

Investing activities

Net cash used in investing activities for the period ended December 31, 2011 was $14,931,889, primarily attributable to scheduled payment of $20,779,249 for purchase of an office building located in Taipei in Taiwan, the purchase of $178,060 of property and equipment, the purchase of $882,999 of securities available for sale, partially offset by proceeds from available for sale securities of $6,908,419.

Net cash used in investing activities for the period ended December 31, 2010 was $2,190,091 primarily attributable to the purchase of $5,773,906 of securities available for sale, the purchase of $322,689 of property and equipment, invested $5,000,000 on convertible notes, partially offset by proceeds from corporate bonds and maturity of corporate notes of $4,497,395 and $500,000, respectively, and available for sale securities of $3,775,009 and loan repayment by vendor of $167,100.

Financing activities

We did not use or receive any cash from financing activities during nine months ended December 31, 2011 and 2010.

Material changes in the Company’s balance sheet items between December 31, 2011 and March 31, 2011 are discussed below:

Category	Increase (I) or Decrease (D)	Reason

Cash and cash equivalents	D	The Company used $20.7 million of its excess cash to invest in an investment property project in Taiwan during the period ended December 31, 2011.

Securities available for sale	D	The Company liquidated a portion of its securities available for sale as settlement of certain intercompany loans and to fund operations.

Inventories	I	The Company anticipated same volume of sales as last year, but due to lower actual sales volumes, higher levels of inventory were stocked during the period.
Property and equipment	D	Accumulated depreciation increased.
Investment in developments in progress	I	The Company’s wholly owned subsidiary, EFT Investment Co. Ltd., entered into two sets of agreements on July 1, 2011 and July 7, 2011 to purchase an office building, located in Taipei, Taiwan, which is under construction and will be completed by the end of 2013. As of December 31, 2011, deposits approximating $20.7 million have been made to the sellers.
Accounts payable	I	Royalty expenses payable to EFT Assets has increased and not yet fully paid by year end.
Commission payable	D	Affiliates withdrew lesser amount of commission payable to them.

Unearned revenue	D	Temporary delay in deliveries of product to Affiliates resulted in higher unearned revenues last year. Such revenue was recognized when goods were delivered to Affiliates in current periods.

Non-controlling interest	D	This item represents the interests in Excalibur and Digital Development Partners, Inc. owned by others.

Between January and August 2008, the Company sold 14,890,040 Units to non-U.S. residents at a price of $3.80 per Unit. The Units were sold pursuant to the exemption provided by Regulation S of the Securities Act of 1933.Each Unit consisted of one share of the Company’s common stock and one warrant. Each warrant allowed the holder to purchase one share of the Company’s common stock at a price of $3.80 per share at any time prior to November 30, 2010. On September 2, 2010, the Company extended the expiration date of the warrants to November 30, 2011. The warrants have expired during the nine months ended December 31, 2011.

The Company used $19,193,000 from the sale of the Units to purchase its 48.81% interest in Excalibur International Marine Corporation.

Yeuh-Chi Liu, a supplier of the Company’s spray bottles, borrowed $1,567,000 from the Company in July 2008. The loan is non-interest bearing and is payable upon demand. The loan was used by Yeuh-Chi Liu to acquire a 3.97% ownership of Excalibur International Marine Corporation and is secured by that interest. The Company provided a full allowance for impairment in the amount of $1,567,000 against the demand loan during the year ended March 31, 2011. The Company has not yet enforced its interest in the collateral.

Since July 2008, the Company has made loans to Excalibur International Marine Corporation. The loans were primarily used by Excalibur to acquire its ship, the OceanLaLa, and to fund operating costs. As of December 31, 2011 the Company had the following outstanding loans to Excalibur. Because the Company consolidates Excalibur, these loans are not included in its consolidated financial statements.

Principal Amount		Interest Rate			Due Date

$	1,564,717		0	%	Due on demand
$	160,000		8	%	February 11, 2012
$	140,000		8	%	March 10, 2012
$	130,000		8	%	April 3, 2012
$	512,000		8	%	April 30, 2012
$	260,000		8	%	June 5, 2012
$	150,000		8	%	June 28, 2012
$	400,000		8	%	July 6, 2012
$	100,000		8	%	August 20, 2012
$	250,000		8	%	September 1, 2012
$	200,000		8	%	October 12, 2012
$	1,100,000		8	%	November 13, 2012
$	90,000		8	%	November 24, 2012
$	2,500,000		8	%	November 25, 2012
$	330,000		8	%	January 5, 2013
$	100,000		8	%	January 7, 2013
$	100,000		8	%	January 25, 2013
$	120,000		8	%	February 1, 2013

$	8,206,717

From the proceeds of the sale of Units, the Company bought $4.8 million of corporate bonds as investment securities during the year ended March 31, 2010. All corporate bonds were sold in November 2010.

The Company also lent $5,000,000 to CTX Virtual Technologies Inc., “CTX”, in July 2010. The loan to CTX was unsecured, bore interest at 8% per year and had a term of one year to July 26, 2011. At any time during the one year term, the Company could, at its option, convert the loan into 8,474,576 units, with each unit consisting of one share of CTX’s common stock and one warrant (to be increased by 25% to 10,593,220 units if CTX common stock was not listed on either American Stock Exchange, the OTC Bulletin Board or NASDAQ by February 28, 2011). On March 12, 2011, CTX elected to convert the full amount of $5,000,000 into 10,593,220 units and paid the Company in full all accrued and unpaid interest owing.

Since February 2010, the Company has started to buy securities available for sales to earn interest, and has invested $10.7 million as of December 31, 2011.

From May 2011, the Company started to invest in a real estate project in Taiwan. As of December 31, 2011, payment of NTD600 million, approximately $20.7 million, has been made to the property developers.

The unused cash and cash equivalents of $4.6 million at December 31, 2011 will be used in the Company’s daily operation.

We have no unused lines of credit or other borrowing facilities and believe that our on-going operations generate sufficient cash to meet their liquidity requirements.

Future Contractual Obligations

	Total		2012		2013		2014		2015		Thereafter

Lease payments	$	1,350,716	$	121,062	$	487,386	$	371,134	$	371,134	$	-

See Note 16 of the Notes to the Consolidated Financial Statements contained in Item 1 for our future contractual obligations under the employment agreements with certain of our executive officers and the consultancy agreement with a related party.

Other than as disclosed above and except for the payment obligation to purchase an office building located in Taipei, Taiwan as disclosed in Item 1- Note 7, the Company does not anticipate any capital requirements for the year ending March 31, 2012.

Commitments for capital expenditures

Except as otherwise disclosed herein, the Company does not have any commitments for any material capital expenditures. The Company does not have any commitments or arrangements from any person to provide it with any additional capital.

Except as disclosed in this Item 2, the Company does not know of any trends or demands that affected, or are reasonably likely to affect, its capital resources or liquidity.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its financial condition.

Significant Accounting Policies/Recent Accounting Pronouncements

See Item 1- Note 3 to the financial statements included as part of this report for a description of the Company’s significant accounting policies and recent accounting pronouncements which have, or potentially may have, a material impact on its financial statements.

Critical Accounting Policies and Estimates

During the nine months ended December 31, 2011 the Company did not change any of its critical accounting policies or estimates.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

There were no material changes to the disclosure made in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011 regarding this matter.

Item 4

Controls and Procedures

(a)

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Jack Jie Qin and William E. Sluss, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2011, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Qin and William E. Sluss concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2011.

The Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of its disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

(b)

Changes in Internal Controls.

On February 16, 2012, the Company announced that it had identified historical accounting errors relating to the calculation of the Company’s cost of goods sold (“COGS”) in the Company’s previously issued unaudited interim consolidated financial statements as of and for the quarterly periods ended June 30 and September 30, 2011. The accounting errors did not result from any changes in the Company’s internal accounting policies, and the Company has no evidence that the errors resulted from any fraud or intentional misconduct.

The Company undertook a review to determine the total amount of the errors and the accounting periods in which the errors occurred. The Company’s review determined that the value of goods in transit (“GIT”) was omitted from the COGS calculation for those periods. The Company historically has relied upon a third-party logistics company to provide periodic inventory figures from which it has calculated its COGS. Management identified the accounting errors in connection with the preparation of the Company’s unaudited interim consolidated financial statements for the quarterly period ended December 31, 2011. After analyzing the size and timing of the errors, the Company determined that, in the aggregate, the errors were material and would require the Company to restate the unaudited interim consolidated financial statements as of and for the quarterly periods ended June 30 and September 30, 2011.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness in internal control over financial reporting has been identified as of December 31, 2011.

•

The Company did not sufficiently track certain figures used in calculating the Company’s cost of goods sold (“COGS”). Specifically, the Company's controls did not operate effectively to ensure the appropriate and timely analysis of and accounting for goods in transit (“GIT”) figures received from a third-party logistics company as a part of the Company’s calculation of its COGS.

This flaw represented a material weakness in the Company’s internal control over financial reporting as of December 31, 2011.

In order to address the material weakness identified above, the Company has taken certain remedial actions to strengthen its internal control over financial reporting. The Company will track all GIT and record them on a monthly basis. At the end of each month, the Company will obtain from the third-party logistics company monthly shipping logs and will track all GIT until received at the Company’s warehouse and subsequently counted in that inventory count. If GIT have not been received at one of the Company’s warehouses, the Company will record each item in the GIT inventories and book them in a separate general ledger (“GL”). In the subsequent month, all GIT that have been received will be reversed out of the GL and recorded to COGS. Any GIT shipments that were not received will remain in the GL. The GL will be reconciled to the GIT inventory cost calculation reports from the third-party logistics company each month.

Management believes that the measures described above will satisfactorily address the referenced material weakness. Under the direction of the Audit Committee, management will continue to review and make necessary changes to the system of internal controls and the control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.

Other than as discussed above, there was no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2011 that is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

See Note 18 to the financial statements included as part of this report.

Item 1A.

Risk Factors.

There have not been any material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits

Exhibit No.:	Description:
31.1	Rule 13a-14(a) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jack Qin.

31.2	Rule 13a-14(a) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for William E. Sluss.

32.1	Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Jack Qin.

32.2	Section 1350 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for William E. Sluss.

101	The following materials from the EFT Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, filed on July 23, 2012 formatted in Extensible Business Reporting Language (XBRL):*
	(i)	Consolidated Balance Sheets (Unaudited),
	(ii)	Consolidated Statements of Operations (Unaudited),
	(iii)	Consolidated Statements of Comprehensive Income (Unaudited),
	(iv)	Consolidated Statements of Cash Flows (Unaudited), and
	(v)	related notes

XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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

		EFT HOLDINGS, INC.
		(Registrant)

Date: July 23, 2012	By:	/s/ Jack Jie Qin
		Jack Jie Qin
		Principal Executive Officer

	By:	/s/ William E. Sluss
		William E. Sluss
		Principal Financial Officer

Attached files

EFT Holdings, Inc. Reports

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