Eft (EFTB) 10-Q 2015 Q2 Quarterly report

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  September 30, 2014

¨ 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.  Yesx      No  ¨

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

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

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

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, November 19, 2014, 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 as of September 30, 2014 (Unaudited) and March 31, 2014	4
	Consolidated Statements of  Operations for the Six Months Ended September 30, 2014 and 2013 (Unaudited)	5
	Consolidated Statements of Comprehensive Income for the Six Months Ended September 30, 2014 and 2013 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2014 and 2013 (Unaudited)	7
	Notes to Consolidated Financial Statements for the Six Months Ended September 30, 2014 and 2013 (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4.	Controls and Procedures.	34
	Part II — Other Information	34
Item 1.	Legal Proceedings.	34
Item 1A.	Risk Factors.	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	34
Item 3.	Defaults Upon Senior Securities.	34
Item 4.	Mine Safety Disclosures.	34
Item 5.	Other Information.	34
Item 6.	Exhibits.	35
Signatures		36

2

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, 2014 as filed with the Securities and Exchange Commission.

3

PART I - FINANCIAL INFORMATION

Item 1.        Financial Statements.

EFT HOLDINGS, INC.

Consolidated Balance Sheets

	September 30, 2014			March 31, 2014
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	5,005,210		$	1,770,206
Securities available for sale		2,238,508			4,662,020
Inventories		387,483			618,919
Prepaid expenses		273,419			620,337
Other receivables		268,467			492,001
Current assets of discontinued operations		30,761			64,879
Total current assets		8,203,848			8,228,362
Property and equipment, net		996,866			1,098,308
Security deposit		406,613			422,029
Non-current assets of discontinued operations		203,386			210,948
Total assets	$	9,810,713		$	9,959,647
LIABILITIES AND EQUITY (DEFICIENCY)
Current liabilities
Accounts payable	$	1,385,677		$	1,189,494
Commission payable		3,841,023			3,884,774
Other liabilities		5,872,849			5,729,073
Unearned revenues		3,276,476			3,268,916
Short-term loan		0			319,245
Contingent liabilities		216,110			213,674
Current liabilities of discontinued operations		3,298,922			3,523,808
Total liabilities		17,891,057			18,128,984
Equity
EFT Holdings, Inc. stockholders' equity (deficiency):
Preferred stock, $0.001 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 September 30 and March 31, 2014		760			760
Additional paid in capital		52,854,891			52,854,891
Retained deficits		(55,196,042	)		(54,963,024	)
Accumulated other comprehensive income		818,256			680,052
Total EFT Holdings, Inc. stockholders’ equity (deficiency)		(1,522,135	)		(1,427,321	)
Non-controlling interest		(6,558,209	)		(6,742,016	)
Total equity (deficiency)		(8,080,344	)		(8,169,337	)
Total liabilities and equity (deficiency)	$	9,810,713		$	9,959,647

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

4

EFT HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
Sales revenues, net	$	118,961		$	511,389		$	348,534		$	932,229
Shipping charges		45,004			136,295			113,409			221,477
Total revenues, net		163,965			647,684			461,943			1,153,706
Cost of goods sold		62,182			173,836			140,531			364,689
Shipping costs		26,843			18,475			32,146			28,879
Total cost of revenues		89,025			192,311			172,677			393,568
Gross profit		74,940			455,373			289,266			760,138
Operating expenses:
Selling, general and administrative expenses		848,575			1,808,888			2,590,794			3,260,889
Provision for inventory obsolescence		62,255			(44,158	)		119,231			105,207
Royalty expenses		228,202			37,339			250,000			80,404
Total operating expenses		1,139,032			1,802,069			2,960,025			3,446,500
Net operating loss		(1,064,092	)		(1,346,696	)		(2,670,759	)		(2,686,362	)
Other income/(expense)
Interest income		43,097			72,416			94,124			158,895
Interest expense		(40,560	)		(790	)		(72,256	)		(3,949	)
Gain/(loss) on disposal of fixed assets		2,549			-			4,831			-
Gain/(loss) on disposal of securities available for sale (includes $(53,989) and $73,434 accumulated other comprehensive income/(loss) reclassifications for unrealized net gains on securities available for sale for the six months ended September 30, 2014 and 2013, respectively)		(72,849	)		1,224			(56,677	)		50,617
Dividend income		4,482			-			8,787			-
Foreign exchange gain/(loss)		(2,339	)		698			(2,534	)		296
Gain on sale of long-term investment		1,445,646			556			2,457,899			1,308
Total other income		1,380,026			74,104			2,434,174			207,167
Income/(loss) from continuing operations before income taxes and non-controlling interest		315,934			(1,272,592	)		(236,585	)		(2,479,195	)
Income taxes expense (benefit)		1,872			(8,733	)		1,872			(8,733	)
Income/(loss) from continuing operations		314,062			(1,263,859	)		(238,457	)		(2,470,462	)
Income/(loss) from discontinued operations		(29,326	)		(151,995	)		2,588			(187,139	)
Net income/(loss)		284,736			(1,415,854	)		(235,869	)		(2,657,601	)
(Income)/loss from non-controlling interest		17,043			(16,337	)		2,851			3,979
Net income/(loss) attributable to EFT Holdings, Inc.	$	301,779		$	(1,432,191	)	$	(233,018	)	$	(2,653,622	)
Net income/(loss) per share – continuing operations
Basic and diluted	$	0.00		$	(0.02	)	$	(0.00	)	$	(0.03	)
Net income/(loss) per share – discontinued operations
Basic and diluted	$	(0.00	)	$	(0.00	)	$	0.00		$	(0.00	)
Net income/(loss) per common share attributable to EFT Holdings, Inc.
Basic and diluted	$	0.00		$	(0.02	)	$	(0.00	)	$	(0.03	)
Weighted average common shares outstanding
Basic and diluted		75,983,201			75,983,201			75,983,201			75,983,201

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

5

EFT HOLDINGS, INC.

Consolidated Statements of Comprehensive Losses

(Unaudited)

	Three Months Ended					Six Months Ended
	September 30,		September 30,			September 30,			September 30,
	2014		2013			2014			2013
Net income/(loss)	$	284,736	$	(1,415,854	)	$	(235,869	)	$	(2,657,601	)
Other comprehensive income/(loss)
Foreign currency translation adjustment		248,231		152,149			264,911			49,536
Unrealized income/(loss) on securities available for sale		44,263		40,973			59,950			(152,651	)
Comprehensive income/(loss)		577,230		(1,222,732	)		88,992			(2,760,716	)
Less: Comprehensive income/(loss) attributable to non-controlling interests		158,002		(67,582	)		183,807			1,858
Comprehensive income/(loss) attributable to EFT Holdings, Inc.	$	419,228	$	(1,155,150	)	$	(94,815	)	$	(2,762,574	)

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

6

EFT HOLDINGS, INC.

Consolidated Statements of Cash Flows
(Unaudited)

	Six Months Ended
	September 30,			September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(235,869	)	$	(2,657,601	)
Net income/(loss) from discontinued operations		2,588			(187,139	)
Net loss from continuing operations		(238,457	)		(2,470,462	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation and amortization		96,538			142,609
(Gain)/loss from securities available for sale		56,677			(50,617	)
Provision for inventory obsolescence		119,231			105,207
(Gain)/loss on disposal of fixed assets		(4,060	)		-
Changes in operating assets and liabilities:
Inventories		112,704			380,463
Prepaid expenses		360,531			306,394
Other receivables		162,085			13,786
Accounts receivable		65,210			(79,250	)
Accounts payable		195,968			(27,193	)
Commission payable		(43,749	)		(131,791	)
Other liabilities		143,777			(90,016	)
Unearned revenues		7,560			(125,790	)
Net cash provided by/(used in) continuing operations		1,034,015			(2,026,660	)
Net cash provided by discontinued operations		73,891			49,310
Net cash provided by/(used in) operating activities		1,107,906			(1,977,350	)
Cash flows from investing activities:
Additions to fixed assets		-			(6,624	)
Proceeds from disposal of fixed assets		20,213			(1,107,577	)
Proceeds from maturity of corporate notes		-			3,931,688
Purchase of securities available for sale		(2,305,082	)		-
Proceeds from available for sale securities		4,731,867			-
Net cash provided by continuing operations		2,446,998			2,817,487
Net cash provided by discontinued operations		120			72
Net cash provided by investing activities		2,447,118			2,817,559
Cash flows from financing activities:
Repayment of installment plan		(319,245	)		(319,966	)
Net cash used in continuing operations		(319,245	)		(319,966	)
Net cash provided by discontinued operations		-			-
Net cash used in financing activities		(319,245	)		(319,966	)
Effect of exchange rate changes on cash		(775	)		(45,679	)
Net increase in cash		3,235,004			474,564
Cash, beginning of period		1,770,206			1,646,675
Cash, end of period	$	5,005,210		$	2,121,239
Supplemental disclosures of cash flow information:
Interest expenses paid in cash	$	2,867		$	3,949

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

7

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., was incorporated in the State of Nevada on March 19, 1992.  The Company’s business is classified by management into two reportable segments: online and beverage. These reportable segments are two distinct businesses, each with a different customer base, marketing strategy and management structure. Substantially all of the Company’s revenue is generated from Mainland China.

Note 2 -GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has negative working capital of $9,687,209 and an accumulated deficit of $55,196,042 as of September 30, 2014 and has reported net losses for the past two fiscal years. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital from external sources such as bank borrowings or capital issuances in order to continue the long-term efforts contemplated under its current business plan. Management is also considering different marketing strategies to generate more revenues and plans to continue to reduce certain operating expenses going forward. In addition, the Company is seeking to recover $21 million through the U.S. federal courts, but there can be no assurance that it will be successful in doing so. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 Note 3 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2014 and the results of operations and cash flows for the periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the six months ended September 30, 2014 are not necessarily indicative of the results to be expected for any subsequent periods or for the year ending March 31, 2015. The balance sheet at March 31, 2014 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended March 31, 2014 as included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014.

Principles of Consolidation

The financial statements include the accounts of EFT Holdings, Inc. and its subsidiaries. All material intercompany transactions and balances have been eliminated.

Reclassification

Certain amounts for prior periods have been reclassified to conform to the current period presentation.

Uses of estimates in the preparation of financial statements

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and this requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. The significant areas requiring the use of management estimates include, but not limited to, the allowance for doubtful accounts receivable, estimated useful life and residual value of property, plant and equipment, provision for staff benefit, inventory markdown allowance, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates.

8

The significant accounting policies used in preparation of these consolidated financial statements for the six months ended September 30, 2014 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014. The Company consolidates Excalibur International Marine Corporation (“Excalibur”) based on a three-month lag with the Company’s reporting periods as discussed in Note 8.

Recent accounting pronouncements

In August 2014, the FASB issued ASU 2014-15,Presentation of Financial Statements-Going Concern (Subtopic 205-40).This ASU provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The revised accounting guidance applies to all entities. It is effective for the first annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not believe the adoption of this ASU will have a material effect on its consolidated financial statements.

In April 2014, the FASB issued amendments to ASC Topic 205 “Presentation of Financial Statements” and ASC Topic 360 “Property, Plant and Equipment”. The amendments change the current requirements for reporting discontinued operations in Subtopic 205-20. It requires an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability section, respectively, of the statement of financial position. This topic is effective for public entities for reporting periods beginning after December 15, 2014. An entity should not apply the amendments to a component classified as held for sale before the effective date even if the component of an entity is disposed of after the effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. The Company does not believe the adoption of the amendments to ASC 205 and ASC 360 will have a material effect on its consolidated financial statements.  

There are no other new accounting pronouncements adopted or enacted during the six months ended September 30, 2014 that had, or are expected to have, a material impact on the Company’s financial statements.

Except for rules and interpretive releases of the SEC and a limited number of grandfathered standards, the FASB Accounting Standards Codification ("ASC") is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.

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.

Level 2 — Other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

9

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.

Assets measured at fair value are summarized below:

	September 30, 2014
	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 - Debt securities	$	2,238,508						2,238,508
Total assets measured at fair value	$	2,238,508						2,238,508
	March 31, 2014
	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 - Debt securities	$	4,662,020	$	-	$	-	$	4,662,020
Total assets measured at fair value	$	4,662,020	$	-	$	-	$	4,662,020

Note 5 – SECURITIES AVAILABLE FOR SALE

Securities available for sale consist of the following:

	September 30, 2014
	Amortized		Unrealized		Unrealized			Market		Average
	Cost		Gains		Losses			Value		Duration (1)
Corporate bonds	$	1,681,193		10,186		(11,557	)		1,679,822		4.36
Corporate notes		563,937				(5,252	)		558,686		3.57
Total debt securities	$	2,245,131		10,186		(16,809	)		2,238,508

	March 31, 2014
	Amortized		Unrealized		Unrealized			Market		Average
	Cost		Gains		Losses			Value		Duration (1)
Corporate bonds	$	1,786,057	$	23,069	$	(26,346	)		1,782,780		2.56
Corporate notes		998,750		-		(23,750	)		975,000		3.56
Variable rate notes		1,943,785		21,080		(60,625	)		1,904,240		Perpetual
Total debt securities	$	4,728,592	$	44,149	$	(110,721	)	$	4,662,020

(1) Average remaining duration to maturity, in years

All securities were classified as available for sale as of each date presented.

10

The following table shows the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, as of September 30, 2014:

	Less than 1 year					1 Year or More					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Loss
Corporate bonds	$	138,732		(2,379	)		740,801		(9,178	)		879,532		(11,557	)
Corporate notes							558,686		(5,252	)		558,686		(5,252	)
Total debt securities	$	138,732		(2,379	)		1,299,486		(14,429	)		1,438,218		(16,809	)

Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery of cost.

There were 19 securities in an unrealized loss position at September 30, 2014. Management does not intend to sell any of the securities classified as available for sale which have unrealized losses and believes that it is not likely that the Company will have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased and are not the result of deteriorated credit quality. The fair value is expected to recover as the bonds approach their maturity or re-pricing date or if market yields for such investments decline. Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality.

Investment securities with a book value of $4,788,543 were sold during the six months ended September 30, 2014. The Company recognized a loss of $56,677 on the sale of those securities.

Note 6 –INVENTORIES

Inventories are valued at the lower of cost, determined on a first-in, first-out or market basis. Inventory consists of nutritional, personal care, automotive additive, environmentally safe products, portable drinking containers and the EFT-Phone. The Company has three warehouses, one in City of Industry, CA, one in Kowloon, Hong Kong, and one at its factory in the PRC. The Company also consigned some of its inventories to two logistics service providers in China. 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.

The components of inventories were as follows:

	September 30, 2014			March 31, 2014
Raw materials and supplies	$	42,716		$	43,407
Finished goods		1,378,455			1,495,349
		1,421,171			1,538,756
Less: Provision for inventory obsolescence		(1,033,688	)		(919,837	)
	$	387,483		$	618,919

11

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 8, and is collateralized by that interest. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since July 23, 2008. 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 “EFT” trademark was owned by Top Capital Inc. beginning in the 1990s and was operated for its online business in China. At the time when Top Capital Inc. merged with the Company on November 16, 2007, the ownership of the “EFT” trademark was transferred to EFT Assets Limited, a company in which Wendy Qin, a director of EFT International Ltd., serves as a director. Pursuant to an agreement between the Company and EFT Assets Limited at the time of the merger, the Company uses the “EFT” name and is required to pay an annual royalty to EFT Assets Limited 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, with a minimum annual royalty of $500,000. EFT Assets Limited is owned by a number of persons, including Wendy Qin. Ms. Qin is the sister of Jack Jie Qin, the Company’s president. During the six months ended September 30, 2014 and 2013, royalty fees incurred pursuant to the agreement with EFT Assets Limited were $250,000 and $80,404, respectively.

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 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, and the annual fee will be increased at the rate of $15,000 each year. The agreement may be terminated by either party on three months’ written notice. For the six months ended September 30, 2014 and 2013, EFT International Ltd. paid JFL Capital Limited $187,500 and $180,000, respectively.

The Company rents a 6,500 square foot office space at market rate 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 leased space is owned by a number of persons, including Wendy Qin, a director of EFT (HK) Ltd and the sister of Jack Jie Qin, the Company’s president. The lease for this space expires on March 31, 2015, with a monthly rental of $30,900. On May 1, 2014, the Company sublet a portion of the rental office space, approximately 1,230 square feet, to a third party at a market rate in an effort to reduce the Company’s costs. On November 1, 2014, the Company further sublet approximately 2,200 square feet of office space to another third party at a market rate to further reduce the Company’s costs. During the six months ended September 30, 2014 and 2013, the Company paid the lessor $146,907 and $185,567, respectively, in rent.

Note 8 –DISCONTINUED OPERATION - 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.

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 and statement of operations information for Excalibur, which is consolidated in the Company’s financial statements:

	Excalibur International Marine Corporation
	June 30, 2014						December 31, 2013
	NTD*			USD			NTD*			USD
Total assets, net		7,132,128			234,147			8,244,403			275,827
Total liabilities, net		100,485,251			3,298,924			105,326,659			3,523,808
Net assets		(93,353,123	)		(3,064,777	)		(97,082,256	)		(3,247,981	)
48.81% ownership		(45,565,659	)		(1,495,918	)		(47,385,849	)		(1,585,340	)

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	For the three months ended
	June 30, 2014						June 30, 2013
	NTD*			USD			NTD*			USD
Operating cost		-			(197	)		3,534,931			117,848
Selling, general and administrative expenses		13,639			273			995,582			33,120
Interest income		(75	)		(2	)		(741	)		(25	)
Interest expense		812,155			26,723			-			-
Foreign exchange (gain)/loss		-			710			(26	)		355
(Gain)/loss on disposal of fixed assets		55,119			1,819			-			(6	)
Other income		-			-			3,060			703
Net loss		880,838			29,326			4,532,806			151,995
48.81% ownership		429,937			14,314			2,212,463			74,189

	For the six months ended
	June 30, 2014						June 30, 2013
	NTD*			USD			NTD*			USD
Operating cost		1,105,876			36,605			6,998,820			235,096
Selling, general and administrative expenses		1,031,267			34,138			2,250,284			75,590
Interest income		(75	)		(2	)		(741	)		(25	)
Interest expense		1,720,802			56,961			-			-
Foreign exchange (gain)/loss		(4,025,712	)		(133,257	)		(1,380,278	)		(46,365	)
Gain on disposal of fixed assets		89,626			2,967			25,740			865
Other income		-			-			(2,322,707	)		(78,022	)
Net (income)/loss		(78,216	)		(2,588	)		5,571,118			187,139
48.81% ownership		(38,177	)		(1,263	)		2,719,263			91,343

*NTD: New Taiwan Dollar

On August 8, 2010, the Company’s vessel, the Ocean LaLa, was damaged when sailing in the Taiwan Strait. As a result of the damage suffered, the Ocean LaLa 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.

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Since August 2010, the Ocean LaLa has remained in dry dock and its damage has not been repaired. As such, professional valuations of the Ocean LaLa have been difficult to obtain. Therefore, alternative methods have been utilized. The Company searched ship broker information to get a market price for a similar (i.e., those with similar size and capacity) but fully functional vessel, since the Company could not find a similar vessel with the exact damage as the Ocean LaLa. The market value of the Ocean LaLa was then calculated by subtracting the quoted repair estimate for the Ocean LaLa from the market value of such similar vessel. In addition, in March 2013, the Company received an offer from an independent third party to purchase the Ocean LaLa. The adjusted market value described above exceeded the net carrying value of the vessel, but the offer to purchase the Ocean LaLa was below the net book value. Based on the above analysis, the Company concluded that the net carrying value of the equipment exceeded its fair value and a further impairment loss of $5.5 million was recorded during the year ended March 31, 2013.

During the period ended September 30, 2013, Excalibur’s management obtained approval from its shareholders to sell the vessel. The transportation equipment was then classified as held for sale as it met all the criteria outlined by ASC 360-10-45-9. In December 2013, Excalibur signed a memorandum of agreement with a potential buyer to sell the Ocean LaLa for $1,500,000. The vessel was delivered to the seller on March 15, 2014 and the title to the vessel was then passed to the buyer on the same date. A commission of 3% based on the purchase price was paid to the broker handling the transaction. A gain on disposal of NTD 13,915,488, equivalent to $467,590, has been recognized for the subsequent increase in selling price less cost to sell the vessel, but not in excess of the cumulative impairment loss recognized in accordance with ASC 360.

Following the disposal of the Ocean LaLa in March 2014, the operating results associated with the transportation business have been classified as discontinued operations in the consolidated financial statements. The Company recorded income of $2,588 in the six months ended September 30, 2014, primarily relating to exchange gain associated with the disposal, partly offset by Company expenses during the period. Even though the Company has discontinued the operations related to the shipping segment, the Company continues certain wrap-up activities related to several ongoing lawsuits involving its investment in this segment. Additional information concerning Excalibur is included in Note 17 (Litigation).

Note 9-INVESTMENT IN CTX VIRTUAL TECHNOLOGIES

The Company currently owns 5,626,914 shares of common stock of CTX Virtual Technologies, Inc. (“CTX”) (Pink Sheets: CTXV). The original investment of $5,000,000 for 10,593,220 shares of CTX common stock was recorded as a long-term investment carried on the cost method. Although the Company appeared at the time of the investment to hold a majority of the common stock outstanding, CTX also had outstanding classes of preferred stock that had super-majority voting rights. As a result, EFT does not control CTX. During the year ended March 31, 2011, the Company recorded a full impairment of the investment, bringing its carrying value to zero.

During the six months ended September 30, 2014, the Company sold approximately 5 million shares of CTX for approximately $2.5 million less commissions and other fees and reported a gain of approximately $2.4 million in the accompanying consolidated statement of operations.

The Company intends to sell the remaining 5.6 million shares of CTX but there can be no assurance that it will be able to do so.

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Note 10 -OTHER LIABILITIES

Other liabilities consist of the following:

	September 30, 2014		March 31, 2014
Payroll liabilities	$	47,409	$	53,003
Warranty liabilities		2,012		2,593
Accrued interest		-		2,867
Accrued expenses		462,462		372,919
Provision for tax		5,358,280		5,295,033
Others		2,686		2,658
	$	5,872,849	$	5,729,073

Note 11 -CONTINGENT LIABILITIES

The Company’s controlled subsidiary, Excalibur, purchased the vessel “Ocean LaLa” from a British Virgin Islands, “BVI,” company, Ezone Capital Co. Ltd., in 2008. The purchase price was EURO 16 million, equivalent to approximately $21.9 million. The vessel was delivered to Excalibur and registered as owned by Excalibur at the end of 2008. The last payment of EURO 2 million, equivalent to $2,531,646, is still under dispute as Excalibur believes that certain special equipment relating to the Ocean LaLa, including special tooling, was not delivered at the time of sale and one of Ezone’s directors did not act in good faith and was involved in self-dealing. On August 18, 2010, the dispute was submitted to an arbitral tribunal. The Final Arbitration Award was published by the arbitral tribunal on June 9, 2014, and Excalibur was ordered to pay to Ezone the sum of Euro 2 million plus interest at a rate of 4.5% from August 19, 2008 compounded until the date of the Final Arbitration Award and thereafter at the same rate and compounded on the same basis until the date of payment. The Company has decided not to appeal the arbitration award. As of September 30, 2014, the Euro 2 million contingent liability and approximately $668,250 of interest has been accrued.

In 2009, the Company’s subsidiary, Tianquan, engaged a general contractor to construct a water manufacturing plant for RMB 4,758,600 (US$775,000).  Upon completion, EFT inspected the plant and found several material construction defects, including, but not limited to, the fact that the contractor used inferior construction material, inconsistent construction plans and substandard insulation material. As a result, EFT conditioned its final construction payment to the contractor in the amount of RMB 698,896 (US$113,800) on the rectification of all construction defects. On March 22, 2012, the contractor brought a case against EFT in Baiquan People’s Court in Heilongjiang Province seeking approximately RMB 1,912,000 of purported outstanding payments under the contract and interest thereon.  On January 16, 2014, Tianquan received an unfavorable decision issued by Baiquan People’s Court in Heilongjiang Province awarding the contractor approximately RMB 1,326,916 (US$216,100) of purported outstanding payments under the contract and interest thereon.  The Company filed an appeal with Qiqihar Intermediate People’s Court on January 27, 2014. On August 18, 2014, the Qiqihar Intermediate People’s Court issued a judgment rescinding the unfavorable decision issued by the Baiquan People’s Court and ordered the case to be reheard at the Baiquan People’s Court. The final resolution of this case is pending.

Note 12 –SHORT-TERM LOAN

The Company received a $571,200 loan from a third party, Insurance Financing, Inc. (“IFI”), to finance the directors’ and officers’ insurance premium. The loan bore an interest rate of 3.60% per annum. The loan was to be repaid over a nine-month period beginning on December 15, 2013. The terms of the agreement allowed for the Company to make nine equal monthly payments of $64,422 each. As of September 30, 2014, the loan has been repaid in full.

Note 13 –WARRANTS

Prior to September 30, 2014, the Company’s subsidiary Digital Development Partners Inc. had 330,665 Series A warrants and 330,665 Series B warrants outstanding, which are accounted for as equity instruments.  The Series A warrants and Series B warrants permitted 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. These warrants expired on September 30, 2014.

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Note 14 -INCOME TAXES

The Company was incorporated in the United States and has operations in five tax jurisdictions - the United States, the Hong Kong Special Administrative Region (“HK SAR”), mainland China, Taiwan, and the BVI.

The Company generated substantially all of its net income from its BVI operations for the six months ended September 30, 2014.  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 were immaterial for the six months ended September 30, 2014.

The Company’s Taiwanese subsidiaries, Excalibur and EFT Investment, and its factory in mainland China are subject to a 17% and 25% standard enterprise income tax, respectively, based on their taxable net profit. These operations have incurred net accumulated operating losses for income tax purposes and management 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 September 30, 2014 and 2013.

The income tax expenses consist of the following:

	Six Months Ended September 30,
	2014		2013
Current:
Domestic	$	-	$	57
Foreign		-		-
Under/(over) provision for prior years		1,872		(8,790	)
Income tax expenses	$	1,872	$	(8,733	)

A reconciliation of income taxes, with the amounts computed by applying the statutory federal income tax rate, 37% for the six months ended September 30, 2014 and 2013, to income before income taxes for the six months ended September 30, 2014 and 2013, is as follows:

	Six Months Ended September 30,
	2014			2013
Income tax provision at U.S. statutory rate	$	(85,525	)		(946,396	)
State tax					57
Deferred tax valuation allowance		83,225			941,303
Nondeductible expenses		2,300			5,093
Under/(over) provision for prior years		1,872			(8,790	)
Income tax expenses	$	1,872			(8,733	)

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.

The Company has not provided deferred taxes on unremitted earnings attributable to international companies that have been considered to be reinvested indefinitely. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested. In accordance with ASC Topic 740, interest associated with unrecognized tax benefits is classified as income tax and penalties are classified in selling, general and administrative expenses in the statements of operations.

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In December 2013, the IRS concluded its audit of the Company’s returns for the years 2007 through 2010 and issued an examination report that proposed adjustments of $12.3 million of additional tax liabilities for the years 2008 through 2010. After receiving further information from the Company subsequent to the issuance of its original report, the IRS has revised its audit report of the Company’s returns for the years 2008 through 2010 and has reduced its proposed adjustments from $12.3 million to $3.6 million of additional tax liabilities for the years 2008 through 2010. The Company plans to continue to challenge most of the remaining proposed adjustments as set forth in the revised report and is in the process of appealing the proposed adjustments with the IRS. Based on the IRS report, the Company has recorded federal and California state tax liabilities of $3.6 million and $0.8 million, respectively, for the years 2008 through 2010.

The extent of the Company’s operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due.

Note 15 –COMMITMENTS

Lease commitments

The Company leases 3,367 square feet of space in California that serves as its principal executive offices. The lease expires in February 2015. The monthly rent for the period ended September 30, 2014 is $9,455. Future minimum lease payments under the lease are as follows:

Year Ending March 31,
2015	$	47,275

The Company rents office space for its satellite training center in Hong Kong. For additional information please refer to Note 7. The lease expires on March 31, 2015, with a monthly rental of $23,226 until October 31, 2014. Since November 1, 2014, the monthly rental is reduced to $10,735 until the expiration of the lease. Future minimum lease payments under the operating lease are as follows: 

Year Ending March 31,
2015	$	76,903

The Company rents storage space for its satellite training center in Hong Kong. The lease provides for monthly lease payments approximating $955 starting on January 4, 2013 and expiring on January 3, 2015. Future minimum lease payments under the operating lease are as follows:

Year Ending March 31,
2015	$	2,865

The Company rents office space for its operation in Taiwan. The lease expires on December 16, 2014, and the monthly rental is $1,260. Future minimum lease payments under the operating lease are as follows: 

Year Ending March 31,
2015	$	3,780

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The Company also leases a 40,000 square meter property from Yongqin county of Baiquan, Heilongjiang Province, the PRC and constructed a bottled water factory there. The land is leased commencing on December 31, 2009 for a term of fifty years, with a yearly land use rights fee of $3,865.

Year Ending March 31,
2015	3,865
2016	3,865
2017	3,865
2018	3,865
2019	3,865
Thereafter	154,600

Total rent expense for the six months ended September 30, 2014 and 2013, was $169,008 and $282,405, respectively.

Note 16 –SEGMENT INFORMATION

The Company’s business is currently classified by management into two reportable business segments: online and beverage. 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 websites. The online business reportable segment derives revenue from the sales of nutritional products, personal care products and EFT-phones and access fees for its network platform. The beverage business reportable segment derives revenue and expense from the bottled water factory in Baiquan, Heilongjiang Province, the PRC.

Until March 31, 2014, the Company had a third reportable business segment, the transportation segment. The transportation segment, which derived revenue from transporting passengers and cargo between Taiwan and Mainland China through the Taiwan Strait, was discontinued during the quarter ended June 30, 2014 and therefore was classified as a discontinued operation as of September 30, 2014.

Unallocated items comprise mainly corporate expenses and corporate assets.

Although 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 2, “Summary of Significant Accounting Policies.”

The following tables provide the business segment information as of and for the three months ended September 30, 2014 and 2013. Income tax allocations have been determined based on statutory rates in the applicable business segment.

	Three months ended September 30, 2014
	Online			Beverage
	business			business			Unallocated items			Total
Total revenues, net	$	163,965		$	-		$	-		$	163,965
Total cost of revenues		(89,025	)		-			-			(89,025	)
Gross profit		74,940			-			-			74,940
Operating expenses:
Selling, general and administrative expenses		516,945			55,333			276,297			848,575
Provision for inventory obsolescence		62,255			-			-			62,255
Royalty expenses		228,202			-			-			228,202
Total operating expenses		807,402			55,333			276,297			1,139,032
Net operating loss		(732,462	)		(55,333	)		(276,297	)		(1,064,092	)
Other income		(15,421	)		(557	)		1,396,004			1,380,026
Allocated income tax expense		-			-			(1,872	)		(1,872	)
Income/(loss) after income tax		(747,883	)		(55,890	)		1,117,835			314,062
Total long-lived assets		39,844			954,498			2,524			996,866
Additions to long-lived assets		-			-			-			-

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	Three months ended September 30, 2013
	Online business			Beverage business			Unallocated items			Total
Total revenues, net	$	646,432			1,252			0			647,684
Total cost of  revenues		(188,492	)		(3,280	)		0			(192,311	)
Gross profit/(loss)		457,940			(2,567	)		0			455,373
Operating expenses:
Selling, general and administrative expenses		924,023			83,675			801,190			1,808,888
Provision for inventory obsolescence		(44,158	)		0			0			(44,158	)
Royalty expenses		37,339			0			0			37,339
Total operating expenses		917,203			83,675			801,190			1,802,068
Net operating loss		(459,263	)		(86,242	)		(801,190	)		(1,346,695	)
Other income		52,845			(1	)		21,258			74,103
Allocated income tax benefit/(expense)		8,790			0			(57	)		8,733
Loss after income tax		(397,628	)		(86,243	)		(779,989	)		(1,263,860	)
Total long-lived assets		107,658			1,128,555			21,959			1,258,172
Additions to long-lived assets		1,517			0			1			1,518

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The following tables provide the business segment information as of and for the six months ended September 30, 2014 and 2013. Income tax allocations have been determined based on statutory rates in the applicable business segment.

	Six months ended September 30,2014
	Online			Beverage
	business			business			Unallocated items			Total
Total revenues, net	$	461,943			-			-			461,943
Total cost of  revenues		(172,677	)		-			-			(172,677	)
Gross profit		289,266			-			-			289,266
Operating expenses:
Selling, general and administrative expenses		895,350			114,457			1,580,987			2,590,794
Provision for inventory obsolescence		119,231			-			-			119,231
Royalty expenses		250,000			-			-			250,000
Total operating expenses		1,264,581			114,457			1,580,987			2,960,025
Net operating loss		(975,315	)		(114,457	)		(1,580,987	)		(2,670,759	)
Other income		86,721			4,785			2,342,668			2,434,174
Allocated income tax expense		-			-			(1,872	)		(1,872	)
Income/(loss) after income tax		(888,594	)		(109,672	)		759,809			(238,457	)
Total long-lived assets		39,844			954,498			2,524			996,866
Additions to long-lived assets		-			-			-			-

	Six months ended September 30, 2013
	Online business			Beverage business			Unallocated items			Total
Total revenues, net	$	1,145,872			7,834						1,153,706
Total cost of  revenues		(387,156	)		(6,413	)					(393,568	)
Gross profit		758,716			1,422						760,138
Operating expenses:
Selling, general and administrative expenses		1,471,929			176,570			1,612,390			3,260,889
Provision for inventory obsolescence		105,207									105,207
Royalty expenses		80,404									80,404
Total operating expenses		1,657,539			176,570			1,612,390			3,446,499
Net operating loss		(898,823	)		(175,148	)		(1,612,390	)		(2,686,361	)
Other income		95,017						112,148			207,166
Allocated income tax benefit/(expense)		8,790						(57	)		8,733
Loss after income tax		(795,016	)		(175,148	)		(1,500,299	)		(2,470,463	)
Total long-lived assets		107,658			1,128,555			21,959			1,258,172
Additions to long-lived assets		1,517						5,107			6,624

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Note 17 –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 vessel, the Ocean LaLa, was capable of carrying up to 370 passengers and 630 tons of cargo. Excalibur purchased the Ocean LaLa from Ezone Capital Co. Ltd., prior to its acquisition by the Company. The last payment of EURO 2,000,000, equivalent to $2,531,464, 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.  On August 18, 2010, Excalibur received a statement of claim, equivalent to a complaint in the United States, demanding approximately 2,000,000 Euros. On June 9, 2014, the arbitrators awarded in favor of Ezone, with counterclaims of Excalibur dismissed by the arbitrators. The Company has decided not to appeal the arbitration award.

On October 1, 2010, EFT Investment Co. Ltd. (EFTI) 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 Prosecutor’s Office. EFT Investment Co. Ltd. alleges, among other things, that Defendants committed the offences of capital forging, fraud, breach of trust, and document fabrication. On April 30, 2013, the Taiwan Shihlin District Court found that both Hsaio Zhong-Xing and Lu Zhuo-Jun were guilty of fraudulent increase of paid-up capital and dismissed all other charges. As a result, Hsiao Zhong-Xing received a six-month jail sentence and Lu Zhuo-Jun received a five-month jail sentence. Both of their jail sentences can be converted into a fine. On May 27, 2013, the Shihlin District Prosecutor filed an appeal in the Taiwan High court for reconsideration of the judgment entered by the District Court. On February 19, 2014, the Taiwan High Court sustained the District Court’s decision and found Hsaio Zhong-Xing guilty and sentenced him to a mandatory ten-month jail sentence; and found Lu Zhuo-Jun guilty and sentenced him to a mandatory eight-month jail sentence. This decision is final and confirmed.

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 tortious acts, including but not limited to the offences of capital forging, fraud, breach of trust and document fabrication. The Shihlin District Court found in favor of all Defendants in the case. EFT filed an appeal in the appellate court for reconsideration of the judgment entered by the District Court. The appellate court remanded the case to District Court for the second review and the District Court found in favor of all defendants for the second time. EFT therefore filed a second appeal in the appellate court for reconsideration of the judgment entered by the District Court. The final resolution of this case is pending.

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 NTD 8,050,832, equivalent to approximately $264,000. On August 20, 2009, the Taiwan Taipei district court froze Excalibur’s cash of $203,402 in response to the suit. The final resolution of this case is pending. However, a contingent liability for the restricted cash has been recorded.

On August 2, 2010, the Company commenced a legal proceeding against Marinteknik Shipbuilders (S) Pte Ltd. and six 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 Ocean LaLa. The Company claims that the wrongful actions of the defendants resulted in damages of $19,000,000 to the Company. On December 11, 2012, the High Court issued a decision whereby it dismissed EFT’s actions against Marinteknik and Lim Lan Eng (Priscilla), a director of Marinteknik. On January 8, 2013, EFT filed an appeal against the decision made by the High Court. On November 29, 2013, the appellate court issued its order and sustained the High Court’s decision and awarded legal fees to the defendants. The Company has accrued a liability in the amount of $200,000 for the legal costs. The High Court dismissed the appeal by the Company, but criticized the defendants, stating that their actions were “wholly lacking in probity” and “likely also to have been unlawful”. After seeking further legal advice and balancing all factors, however, it was decided that commencing further legal proceedings on this matter is not beneficial to the commercial interests of the Company.

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In 2009, EFT’s subsidiary, Heilongjiang Tianquan Manor Soda Drinks Co. Ltd., engaged a general contractor, the “Contractor”, to construct a water manufacturing plant, the “Plant”, for RMB4,758,600 (US$775,000).  Upon completion, EFT inspected the Plant and found several material construction defects, including, but not limited to, the fact that the Contractor used inferior construction material, inconsistent construction plans and substandard insulation material. As a result, in 2010, EFT conditioned its final construction payment to the Contractor in the amount of RMB698,896 (US$113,800) on the rectification of all construction defects. On March 22, 2012, the Contractor brought a case against EFT in Baiquan People’s Court in Heilongjiang Province seeking approximately RMB1,912,000 of purported outstanding payments under the contract and interest thereon. On January 16, 2014, EFT’s subsidiary, Heilongjiang Tianquan Manor Soda Drinks Co. Ltd., received an unfavorable decision issued by Baiquan People’s Court in Heilongjiang Province awarding the contractor approximately RMB1,326,916 of purported outstanding payments under the contract and interest thereon.  The Company filed an appeal with Qiqihar Intermediate People’s Court on January 27, 2014. On August 18, 2014, the Qiqihar Intermediate People’s Court issued a judgment rescinding the unfavorable decision issued by the Baiquan People’s Court and ordered the case to be reheard at the Baiquan People’s Court. The final resolution of this case is pending.

On August 8, 2012, the Company filed a complaint against Edward Carter, a former consultant, in the Superior Court of California, county of Los Angeles, in which the Company alleges, among other things, that Mr. Carter breached his consulting contract, fiduciary duty and committed fraud and misrepresentation in respect to the Company’s investment in CTX Virtual Technologies, Inc., “CTX”, as sponsored by Buckman, Buckman & Reid, Inc., “BB&R”, a financial consulting firm and placement agent. The final resolution of this case is pending.

On January 28, 2013, EFT Investment Co. Ltd., a wholly owned subsidiary of the Company in Taiwan (“EFTI”), filed a criminal complaint against Tom Peng a.k.a Cheng Hao Peng (President of Meifu Development Co., Ltd., “Meifu”), Thomas Chen a.k.a. Hong Dong Chen (former General Manager and Director of EFTI), Stiven Peng a.k.a. Tien Te Peng (Vice Chairman of Transglobe Life Insurance Inc., “Transglobe”), Xian Jue Liu (Chairman of Transglobe ), Shih Kuei Chang (General Manager of Meifu), Yi Feng Cheng (Real Estate Department Manager of Transglobe ) and Da Min Wu, an individual, collectively called “Defendants”, in the Taipei District Prosecutor’s Office. EFTI alleges, among other things, that Thomas Chen colluded with Tom Peng and other Defendants, and that Thomas Chen had made numerous misrepresentations to the Company and EFTI on transactions related to a building in Taiwan, of which Meifu and Transglobe were developers. The Company also alleges that Thomas Chen breached his fiduciary duty, as the General Manager of EFTI, by binding EFTI in various agreements and making payments from EFTI to Meifu and Transglobe, which are named Defendants, and that the Defendants had committed violations of securities law, insurance law, corporation law and tax law, as well as money laundering, fraud and breach of trust.

On June 6, 2013, the Company filed a civil complaint in Los Angeles, California against Meifu Development Co., Ltd., Transglobe Life Insurance Inc. and certain individuals related to the purchase of the Taiwan Building. On January 27, 2014, the Company voluntarily dismissed the civil complaints without prejudice in Los Angeles, California, in return for a good faith settlement negotiation initiated by such defendants. However, due to a lack of good faith of the defendants to negotiate for a settlement, on May 30, 2014, the Company re-filed civil complaints against Meifu Development Co. Ltd., Transglobe Life Insurance, Inc., Tom Peng and Thomas Chen in the Los Angeles Supreme Court, alleging deceit, conversion, breach of fiduciary duty and other illegal acts against the Company.

On July 23, 2013, the Taipei District Prosecutor’s Office issued a non-indictment decision on charges of fraud against the Defendants, which the Company believes is unwarranted. The decision not to indict the Defendants was made despite the fact that the Taiwan Investigation Bureau, Ministry of Justice, had confirmed that Thomas Chen, the former GM of EFTI, has received and/or has intended to receive secret profits from Tom Peng, who admitted his full control over Meifu and Transglobe. A report by the Taiwan Investigation Bureau, Ministry of Justice, further revealed, among other fraudulent activities, that Tom Peng and his son, Stiven Peng a.k.a. Tien Te Peng were involved in illegal inter-company transactions and illegal related party transactions. Documents received by the Company through Court petition indicated that, on June 14, 2013, the Prosecutor in Taiwan, despite what the Company believes to have been ample evidence of illegality, instructed the Taiwan Investigation Bureau to halt all further investigations on EFTI’s criminal complaint prior to his written decision not to indict the Defendants. Subsequently, on August 22, 2013, EFTI completed the filing of the appeal with the Taiwan High Prosecutor’s Office for reconsideration of the non-indictment charges against the Defendants. This appeal was rejected on August 29, 2013, which the Company believes was not enough time for the Prosecutor’s Office to fully reconsider the appeal. On September 12, 2013, EFTI filed a final petition to the Taipei District Court for judgment of the decision made by the Taiwan High Prosecutor’s Office, but the petition was rejected on March 5, 2014. The Company is considering various legal options against the Defendants in Taiwan.

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On November 27, 2013, a class action entitledLi, et al. v. EFT Holdings, Inc., et al. was filed on behalf of a putative class of all purchasers of one or more of the Company’s products against the Company and Jack Qin in the United States District Court for the Central District of California.  The amended complaint, filed on July 11, 2014, alleges, among other things, violation of unfair competition law and false advertising law and fraud.  The complaint seeks, among other things, compensatory and punitive damages and injunctive relief.  The case is currently pending.  The Company believes that the claims asserted are without merit and intends to defend against them vigorously.

On November 27, 2013, a class action entitledLi,et al. v. Qin, et al. was filed on behalf of a putative class of all purchasers of the Company’s products against the Company and certain of its current and former officers and directors in the United States District Court for the Central District of California.  The amended complaint, filed on July 11, 2014, adds certain other persons and entities as defendants and alleges, among other things, operation of an endless chain scheme, fraud, corporate waste and gift, and violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The complaint seeks, among other things, compensatory and punitive damages.  The case is currently pending.  The Company believes that the claims asserted are without merit and intends to defend against them vigorously.

On December 6, 2013, the Company joined George Curry (a former director and officer of the Company) in the “CTX” lawsuit as one of the defendants in the Superior Court of California, county of Los Angeles, in which the Company alleges, among other things, that Mr. Curry breached his fiduciary duty and committed fraud and misrepresentation in respect of the Company’s investment in CTX Virtual Technologies, Inc..

On April 18, 2014, George Curry filed a countersuit against EFT Holdings, Inc., Jack Qin and Pyng Soon in the United States Federal District Court, Central District of California, Los Angeles (Western District). In the complaint, Mr. Curry seeks implied and equitable indemnity, declaratory relief and apportionment of fault.

On May 30, 2014, the Company filed a civil lawsuit in the Superior Court of the State of California for the County of Los Angeles - East District against Meifu and others. alleging deceit, conversion, breach of fiduciary duty and money had and received against the defendants. Also named as defendants in this action are TransGlobe, Peng Cheng-Hao (President of Meifu) and Thomas Chen, a former director of EFTI.

Note 18 -SUBSEQUENT EVENTS

On October 3, 2014, the Ministry of Economic Affairs of Taiwan issued a letter to the Company stating that the registrations for the issue of new shares of Excalibur on May 16 and June 15, 2007 were judged to be false by the Taiwan High Court. Therefore, these two registrations were cancelled and all subsequent registrations that followed upon the untrue basis of the two false share registrations were cancelled as well. As the acquisition of Excalibur’s shares by EFTI Taiwan was made after these two invalid share registrations in May and June 2007, the share registration regarding EFTI Taiwan’s purchase of Excalibur’s shares was also cancelled.

After considering the facts referred to above, the Company has concluded that it does not hold an equity position in Excalibur. Rather, the Company’s investment in Excalibur would be considered a Variable Interest Entity (“VIE”) in accordance with ASC 810. The Company provided financial support to Excalibur’s operations and was committed to absorb the losses from Excalibur’s operations. Due to the Company’s investment in Excalibur being considered a VIE, the Company would have consolidated the accounts of Excalibur from the time of its investment and there would have been no impact on the historical financial statements previously presented for the Company.

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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 that 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.

Manufacturing

The Company’s products are manufactured by third-party vendors and are packaged under its brand. The packaging for its products clearly states the country of manufacture, which is currently the United States in most cases. The Company does not have any long-term supply contracts or agreements with any manufacturers. The Company orders its products directly from vendors, on an “as-needed” or “expected need” basis. Raw materials used in the manufacture of the Company’s products are readily available and are not in short supply. The Company is not a party to any agreement for the purchase or delivery of raw materials.

From 2009 through 2012, the Company constructed a factory and water plant to produce bottled natural soda water in Baiquan, Heilongjiang Province, China. The bottled water factory is fully constructed and all manufacturing equipment has been purchased. After obtaining all the required licenses and passing ISO22000 requirements, the factory started production in April 2013, but production was suspended because Tianquan was sued by a contractor who constructed the water plant. The production is expected to resume when the lawsuit is closed and final.

None of the Company’s vendors account for a significant portion of its business and all of them can be replaced on short notice. The Company does not have any binding commitments or manufacturing agreements with any of its vendors.

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 the Company’s products and how to use them.

As of October 28, 2014, the Company had 1,258,100 registered Affiliates, most of which were located in China and Hong Kong. For the six months ended September 30, 2014, 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.

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The Company pays its Affiliates a commission on the products they order from the Company. The commission is approximately 58% 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 to pay for new orders.   With this process, the Company reduces operating expense 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 and China. Once received at the distribution centers, the products are shipped to the Affiliate placing the order. 

EFT-Phone and ToByTo reward program

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., “Digital”, previously an 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. 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.

Starting from December 2010, the Company introduced reward programs to its Affiliates. For example, upon joining a $3,000 program, each Affiliate must pay $3,000 as a non-refundable deposit. When the Affiliate sponsors one new Affiliate, the Company will reward the first Affiliate with a $1,500 instant sponsor bonus. When the first Affiliate sponsors at least two new Affiliates, and those two new Affiliates each also sponsor two new Affiliates, the first Affiliate will have completed the first cycle of the program. The Company will then reward the first Affiliate with an additional $1,500 bonus and deliver an EFT-phone and an e-pad for the cost of $1.  After the completion of the first cycle, each Affiliate will enter into the matrix of the second cycle. Upon completion of the second cycle, the Company will reward the first Affiliate with $3,000. For each subsequent cycle thereafter within the matrix, each Affiliate will need to sponsor a new Affiliate in each cycle in order to qualify for the reward.

On April 1, 2012, the Company assigned network access rights to ToByTo Limited, “ToByTo”, a third-party company. The network access rights to ToByTo Limited include the right to access EFT’s Affiliate database for ToByTo’s marketing campaign, and provides access to EFT’s e-money system to facilitate sales activities. ToByTo, in return, compensates EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the ToByTo e-phone program or another agreed upon amount. During the six months ended September 30, 2014, the Company agreed to waive the access fees in lieu of ToByTo agreeing to purchase a portion of the Company’s overstocked inventory.

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eZGT Travel Program

In May 2011, the Company introduced to its Affiliates a series of travel 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 needs to pay $1 for his or her own trip. The reward system of the travel program is similar to the ToByTo reward program.

On April 1, 2012, the Company assigned network access rights to eZGT Limited, a third party. The network access rights to eZGT Limited include the right to access EFT’s Affiliate database for eZGT’s marketing campaign, and provides access to EFT’s e-money system to facilitate sales activities. eZGT Limited, in return, compensates EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the $300 and $3,000 travel programs or another agreed upon amount. However, for Affiliates who enter the $800 and $8,000 travel programs, eZGT will only pay access fees in the amount of $30 and $300, respectively. During the six months ended September 30, 2014, the Company agreed to waive the access fees in lieu of eZGT limited agreeing to purchase a portion of the Company’s overstocked inventory for an agreed upon period of time.

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 can be 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 downturn 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 downturn 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 will 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. In addition, the Company expects future operations to be affected by ToByTo’ marketing and distribution of EFT phones, eZGT’s marketing of the travel program and the Company’s water bottling operations.

Results of Operations

Comparison for the Three Months Ended September 30, 2014 and 2013

Sales revenues, net

Sales revenues, net decreased to approximately $119,000 for the three months ended September 30, 2014 from approximately $511,000 for the three months ended September 30, 2013 primarily due to a decline in sales demand from the Company’s Affiliates. Sales revenues, net excludes revenue from shipping charges and reflects the deduction of commission expense. The Company’s policy is to pay commissions to Affiliates upon receipt of sales orders even before revenue can be recognized. In addition, sales orders dropped from $561,000 to $361,000 which caused commission expense to decrease from $317,000 for the three months ended September 30, 2013 to $196,000 for the three months ended September 30, 2014.

The Company’s revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB 104”), ACT 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 reasonable assured. Transportation income is generated form transporting passengers and cargo and is recognized at the time when passengers and cargo are conveyed to the destination port. Payments received before all of the 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.

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Shipping charges

Shipping charges decreased to approximately $45,000 for the three months ended September 30, 2014 from approximately $136,000 for the three months ended September 30, 2013 mainly due to a decrease in sales.

Cost of goods sold

Cost of goods sold consists mainly of merchandise purchased from vendors. Cost of goods sold decreased by 64% to approximately $62,000 for the three months ended September 30, 2014 from approximately $174,000 for the three months ended September 30, 2013, mainly due to the reduction in gross sales. Gross sales (i.e. total sales revenue excluding revenue from shipping charges, and before deduction of commission expenses) declined by 62% from approximately $828,000 to $315,000, which is consistent with the decline in cost of goods sold.

Gross profit

Gross profit decreased to approximately $75,000 for the three months ended September 30, 2014 compared to approximately $455,000 for the three months ended September 30, 2013. Gross profit, as a percentage of total revenue, was 46% during the current period compared with 70% for the three months ended September 30, 2013. The decrease in gross profit was due to the sale of promotional products at cost during the current period and higher shipping costs in the current period for products shipped to China.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to approximately $849,000 for the three months ended September 30, 2014 compared to $1,809,000 for the three months ended September 30, 2013, mainly due to an adjustment in the current quarter for over-accrued legal expenses recorded in the prior quarter. In addition, legal fees, computer service fees, rental charges, wages and depreciation were all lower compared with the same period last year.  

Inventory obsolescence

Inventory obsolescence increased to approximately $62,000 for the three months ended September 30, 2014 from approximately $(44,000) for the three months ended September 30, 2013, mainly due to a decline in sales and an adjustment resulting from a revaluation of inventory in the current period.

Royalty expenses

Royalty expenses increased to approximately $228,000 for the three months ended September 30, 2014 as compared to approximately $37,000 for the three months ended September 30, 2013. This increase is due to an adjustment to recognize the expense based on prorated minimum annual payments instead of actual sales revenues. Since current year annualized sales do not meet the minimum sales required to comply with the terms of the agreement, an adjustment was made during the period ended September 30, 2014 to recognize the expense based on the prorated minimum contract amount for the first six months of the fiscal year. 

Interest income

Interest income decreased to approximately $43,000 for the three months ended September 30, 2014 as compared to approximately $72,000 for the three months ended September 30, 2013. Interest income decreased primarily due to a decrease of investments in corporate bonds as compared to the prior period.

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Interest expense

Interest expense increased to approximately $41,000 for the three months ended September 30, 2014 as compared to approximately $1,000 for the three months ended September 30, 2013. The significant increase in interest expense is mainly due to interest of $40,000 related to the provision for underpayment of tax liabilities for the years 2008 to 2010.

Other income

Other income increased to approximately $1,380,000 for the three months ended September 30, 2014 as compared to approximately $74,000 for the three months ended September 30, 2013. The increase in other income is mainly due to the Company’s sale of 2.93 million shares of CTX for approximately $1,422,000 net of commissions and other fees. The sale of 2.93 million shares represents roughly 28% of the Company’s total holdings in CTX prior to the sale, and the Company still owns approximately 5.6 million shares of CTX’s common stock.

Income/(loss) from discontinued operations

Following the disposal of the Ocean LaLa in March 2014, the operating results associated with the transportation business have been classified as discontinued operations in the consolidated financial statements. The Company recorded a loss of approximately $29,000 in the three months ended September 30, 2014, mainly due to interest expense accrued for the Euro 2 million arbitration award payable to Ezone ( refer to Note 17 – Litigation), compared to a loss of approximately $152,000 in the three months ended September 30, 2013, mainly due to higher depreciation, payroll and other operating expenses in the same period last year.

Results of Operations

Comparison for the Six Months Ended September 30, 2014 and 2013

Sales revenues, net

Sales revenues, net decreased to approximately $349,000 for the six months ended September 30, 2014 from approximately $932,000 for the six months ended September 30, 2013 primarily due to a decline in sales demand from the Company’s Affiliates. In addition, sales orders dropped from $1,494,000 to $746,000 which caused commission expense to decrease from $846,000 for the six months ended September 30, 2013 to $432,000 for the six months ended September 30, 2014.

Shipping charges

Shipping charges decreased to approximately $113,000 for the six months ended September 30, 2014 from approximately $221,000 for the six months ended September 30, 2013 mainly due to a decrease in sales.

Cost of goods sold

Cost of goods sold decreased by 60% to approximately $141,000 for the six months ended September 30, 2014 from approximately $365,000 for the six months ended September 30, 2013, mainly due to the reduction in gross sales. Gross sales declined by 56% from approximately $1,779,000 to $781,000, which is consistent with the decline in cost of goods sold.

Gross profit

Gross profit decreased to approximately $289,000 for the six months ended September 30, 2014 compared to approximately $760,000 for the six months ended September 30, 2013. Gross profit, as a percentage of total revenue, was 63% during this period compared with 66% for the six months ended September 30, 2013. The decrease in gross profit was partly due to the sale of promotional products at cost during the current period and higher shipping costs in the current period for products shipped to China.  

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Selling, general and administrative expenses

Selling, general and administrative expenses decreased to approximately $2,591,000 for the six months ended September 30, 2014 compared to $3,261,000 for the six months ended September 30, 2013, mainly due to lower legal fees, computer service fees, rental charges, wages and depreciation in the current period compared with the same period last year. 

Inventory obsolescence

Inventory obsolescence increased to approximately $119,000 for the six months ended September 30, 2014 from approximately $105,000 for the six months ended September 30, 2013, mainly due to increased sales of the Company’s overstocked products during the period.

Royalty expenses

Royalty expenses increased to approximately $250,000 for the six months ended September 30, 2014 as compared to approximately $80,000 for the six months ended September 30, 2013, This increase is due to an adjustment to recognize the expense based on prorated minimum annual payments instead of actual sales revenues. Since current year annualized sales do not meet the minimum sales required to comply with the terms of the agreement, an adjustment was made during the period ended September 30, 2014 to recognize the expense based on the prorated minimum contract amount for the first six months of the fiscal year.

Interest income

Interest income decreased to approximately $94,000 for the six months ended September 30, 2014 as compared to approximately $159,000 for the six months ended September 30, 2013. Interest income decreased due to a decrease of investments in corporate bonds as compared to the prior period.

Interest expense

Interest expense increased to approximately $72,000 for the six months ended September 30, 2014 as compared to approximately $4,000 for the six months ended September 30, 2013. The significant increase in interest expense is mainly due to interest of $69,000 related to the provision for underpayment of tax liabilities for the years 2008 to 2010.

Other income

Other income increased to approximately $2,434,000 for the six months ended September 30, 2014 as compared to approximately $207,000 for the six months ended September 30, 2013. The increase in other income is mainly due to the Company’s sale of 4.97 million shares of CTX for approximately $2,407,000 net of commissions and other fees. The sale of 4.97 million shares represents roughly 47% of the Company’s total holdings in CTX prior to the sale, and the Company still owns approximately 5.6 million shares of CTX’s common stock.

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Income/(loss) from discontinued operations

Following the disposal of the Ocean LaLa in March 2014, the operating results associated with the transportation business have been classified as discontinued operations in the consolidated financial statements. The Company recorded income of approximately $3,000 in the six months ended September 30, 2014, primarily relating to exchange gain associated with the disposal, partially offset by Company expenses during the period. The Company recorded a loss of approximately $187,000 in the six months ended September 30, 2013, mainly due to higher depreciation, payroll and other operating expenses in the same period last year.

Capital Resources and Liquidity

The following table shows the Company’s sources of cash for the six months ended September 30, 2014 and 2013.

	Six Months Ended September 30,
	2014			2013
Net cash provided by / (used in) operating activities	$	1,107,906		$	(1,977,350	)
Net cash provided by investing activities		2,447,118			2,817,559
Net cash used in financing activities		(319,245	)		(319,966	)
Effect of exchange rate changes on cash		(775	)		(45,679	)
Net increase in cash	$	3,235,004			474,564

Operating activities

For the six months ended September 30, 2014, net cash provided by operating activities was $1,107,906. This was primarily due to a net loss of $235,869 adjusted by non-cash related expenses that included depreciation of $96,538, provision for inventory obsolescence of $119,231 and a net increase in working capital items of $1,004,086, and losses realized from the sales of securities available for sale of $56,677.

For the six months ended September 30, 2013, net cash used in operating activities was $1,977,350. This was primarily due to a net loss of $2,657601 adjusted by non-cash related expenses that included depreciation of $142,609, provision for inventory obsolescence of $105,207 and a net increase in working capital items of $246,603, which were offset by gains realized from the sale of securities available for sale of $50,617.

Investing activities

Net cash provided by investing activities for the six months ended September 30, 2014 was $2,447,118, primarily due to proceeds from the sale of corporate bonds of $4,731,867, which were partially offset by the purchase of $2,305,082 of corporate bonds.

Net cash provided by investing activities for the six months ended September 30, 2013 was $2,817,559, mainly due to proceeds from the sale of corporate bonds of $3,931,688, which were partially offset by the purchase of $1,107,577 of corporate bonds.

Financing activities

Net cash used in financing activities for the six months ended September 30, 2014 was $319,245, due to repayment of a short-term loan for financing of the Company’s current year directors’ and officers’ liability insurance policy. For more information please see Note 12 to the consolidated financial statements in this Report.

Net cash used in financing activities for the six months ended September 30, 2013 was $319,966, primarily due to repayment of a short-term loan for financing of the Company’s directors’ and officers’ insurance policy.

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Working Capital

	September 30, 2014			March 31, 2014
Current assets	$	8,203,848		$	8,228,362
Current liabilities		17,891,057			18,128,984
Working capital (deficiency)	$	(9,687,209	)	$	(9,900,622	)

Historically, cash and cash equivalents and securities available for sale have been the Company’s primary sources of liquidity. The Company believes its existing cash and cash equivalents will not be sufficient to meet its working capital requirements for the next 12-month period should the Company fail to successfully appeal the proposed adjustments with the IRS amounting to $3.6 million plus accrued interest and penalties.

There is no assurance that the Company will be able to obtain further funds required for its continued working capital requirements. The ability of the Company to meet its financial obligations and commitments will depend primarily upon the continued financial support of its directors and shareholders, the continued issuance of equity to new shareholders, and its ability to achieve and maintain profitable operations.

There is substantial doubt about the Company’s ability to continue as a going concern as the continuation of the Company’s business is dependent upon obtaining further long-term financing, successfully appealing the proposed adjustment of $3.6 million plus accrued interest and penalties with the IRS, collection of the Company’s prepayment on development in progress of $20.7 million and achieving a profitable level of operations. The issuance of additional equity securities by the Company could result in a significant dilution of the equity interests of its current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities and future cash commitments.

Balance Sheet Items

Material changes in the Company’s balance sheet items between September 30 and March 31, 2014 are discussed below:

Securities Available for Sale

Securities available for sale decreased to $2,238,508 as of September 30, 2014. The Company liquidated the funds held in one of its investment accounts, which the Company plans to reinvest in another account at a different bank after September 30, 2014. Since the funds were not reinvested at September 30, the funds were reflected in the Company’s cash at quarter end.

Prepaid expenses

Prepaid expenses decreased to $273,419 as of September 30, 2014 as compared to $620,337 as of March 31, 2014 due to the amortization of costs associated with the directors’ and officers’ insurance premium during the six months ended September 30, 2014.

Other receivables

Other receivables decreased to $268,467 as of September 30, 2014 as compared to $492,001 as of March 31, 2014 due to the collection of certain long overdue outstanding payments during the six months ended September 30, 2014.

Accounts Payable

Accounts payable increased to $1,385,677 as of September 30, 2014 as compared to $1,189,494 as of March 31, 2014, mainly due to higher royalties payable which were recognized based on prorated annual minimum contract payments rather than year to date actual sales revenue in order to reflect the liability more accurately throughout the year.

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Commission Payable

Commission payable slightly decreased to $3,841,023 as of September 30, 2014 as compared to $3,884,774 as of March 31, 2014 due to lower commissions earned by Affiliates during the six months ended September 30, 2014.

Other Liabilities

Other liabilities increased to $5,872,849 as of September 30, 2014 as compared to $5,729,073 as of March 31, 2014. The increase was mainly due to the accrual of legal fees during the period.

Unearned Revenue

Unearned revenue slightly decreased to $3,246,476 as of September 30, 2014 as compared to $3,268,916 as of March 31, 2014. The recording of unearned revenue results from temporary delays associated with the recognition of revenue related to the sale of products or services to Affiliates. In addition, total unearned revenue included $1,286,450 and $1,655,526 related to Affiliates who have enrolled in ToByTo and eZGT Reward programs, respectively, who have yet to qualify to receive the Company’s rewards.

Non-controlling interest

This item represents the interest in Excalibur and Digital owned by others. Non-controlling interest liabilities decreased due to Excalibur recording exchange gains during the six months ended September 30, 2014.

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 under 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. The Company received $52,848,489 of proceeds from the private placement and 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 aggregating approximately $7.04 million, which bear interest at 8% per annum and are due from October 2014 to September 2015. The loans were primarily used by Excalibur to acquire its vessel, the Ocean LaLa, and to fund operating costs. Because the Company consolidates Excalibur, these loans are not included in its consolidated financial statements.

Discontinued Operations

Following the disposal of the Ocean LaLa in March 2014, the operating results associated with the transportation business have been classified as discontinued operations in the consolidated financial statements. At September 30, 2014, the Company had $30,761 of current assets of discontinued operations, compared to $64,879 at March 31, 2014. Non-current assets of discontinued operations were $203,386 at September 30, 2014, compared to $210,948 at March 31, 2014. The Company had $3,298,922 of current liabilities of discontinued operations, compared to $3,523,808 at March 31, 2014. Additional information concerning Excalibur is included in Notes 17 (Litigation).

The Company 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 the 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 for all accrued and unpaid interest that it owed to the Company. During the six months ended September 30, 2014, the Company sold 4.97 million shares of CTX for approximately $2,407,000 net of commissions and other fees. The sale of 4.97 million shares represents roughly 47% of the Company’s total holdings in CTX prior to the sale, and the Company still owns approximately 5.6 million shares of CTX’s common stock.

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From May 2011, the Company’s Taiwan subsidiary EFT Investment entered into agreements to secure an option to invest in a real estate project in Taiwan. As of September 30, 2014, option payments of NTD600 million, or approximately US$20.8 million, have been made to the property developers. As required by U.S. GAAP, the Company performed an impairment analysis related to the prepayment on development in progress asset and recorded an impairment of approximately $8,966,000 related to this asset based on this analysis for the year ended March 31, 2014. The Company performed a similar analysis for the year ended March 31, 2013 and recorded an impairment of approximately $11,227,000.

The Company also bought securities available for sale to earn interest, and has invested $2.2 million in such securities at September 30, 2014. The unused cash and cash equivalents of $5.0 million at September 30, 2014 will be used in the Company’s daily operations and investments in securities. The Company has no unused lines of credit or other borrowing facilities and believes that its ongoing operations generate sufficient cash to meet its liquidity requirements.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2014 did not materially change from the amounts set forth in our Annual Report on Form 10-K for the year ended March 31, 2014.

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

The Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Our significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2014, as filed with the U.S. Securities and Exchange Commission (“SEC”) on July 15, 2014.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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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 September 30, 2014, 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 Sluss concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2014.

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

There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2014 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 17 to the financial statements included as part of this Report.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibits 

Exhibit No.:	Description:
31.1*	Rule 13a-14(a) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Jack Jie 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 Jie 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 September 30, 2014, filed on August 19, 2014 formatted in Extensible Business Reporting Language (XBRL):

(i)	Consolidated Balance Sheets (Unaudited),
(ii)	Consolidated Statements of Income (Unaudited),
(iii)	Consolidated Statements of Comprehensive Income (Unaudited),
(iv)	Consolidated Statements of Changes in Equity (Unaudited),
(v)	Consolidated Statements of Cash Flows (Unaudited), and
(vi)	related notes

*Filed herewith.

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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: November 19, 2014	By:	/s/ Jack Jie Qin
		Jack Jie Qin
		Principal Executive Officer
	By:	/s/William E. Sluss
		William E. Sluss
		Principal Financial Officer

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