UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: March 31, 2010
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________ to ________
EFT BIOTECH HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Commission File No. 001-34222
Nevada 20-1211204
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17800 Castleton St., Suite 300
City of Industry, CA 91748
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (626) 581-3335
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. |_| Yes |X| No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_| Yes |X| No
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| 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 (ss. 229.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). |_| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |_| Yes |X| No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated |_| Accelerated filer |X|
filer
Non-accelerated |_| Smaller reporting |_|
filer company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). |_| Yes |X| No
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $ 93,153,660 as of September
30, 2009.
As of May 31, 2010, the registrant had 75,983,205 outstanding shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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PART I
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report on Form 10-K are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding our plans and objectives for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Forward-looking statements are based on current
expectations that involve numerous risks and uncertainties.
Our plans and objectives are based, in part, on assumptions involving the
continued expansion of our business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
our control. Although we believe our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance the forward-looking statements included in
this report will prove to be accurate. In light of the significant uncertainties
inherent in forward-looking statements, the inclusion of such information should
not be regarded as a representation by us or any other person that our
objectives and plans will be achieved.
ITEM 1. BUSINESS.
General
We were incorporated in Nevada on March 19, 1992, originally under the
name GRG, Inc. Our name was later changed to HumWare Media Corporation.
In 1999 Jack Jie Qin, our President and Chief Executive Officer, began
selling nutritional and personal care products. In 2000 Mr. Qin formed eFast
Team International, Inc. to sell these nutritional and personal care products,
many of which are the same, or virtually the same, as the products we sell
today. eFast Team also used an affiliate program, which was similar to ours, to
sell its products. The business conducted by eFast Team was eventually
transferred to a Nevada corporation named EFT BioTech, Inc.
In November 2007 we issued 53,300,000 shares of our common stock in
exchange for all of the issued and outstanding shares of EFT BioTech, Inc. EFT
BioTech, at the time of this transaction was selling the products we currently
sell.
In November 2007, our shareholders approved a resolution changing our name
to EFT BioTech Holdings, Inc. and approved a 20,000-for-one reverse stock split.
We operate through our subsidiaries and, unless otherwise noted, any
reference to our operations includes the operations of our subsidiaries.
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Since acquiring EFT BioTech in November 2007 we have been an e-Business
company designed around the "Business-to-Customer" concept, which means that our
products are sold directly to customers through our web site. Our
"Business-to-Customer" model differs from the traditional "Business to Business"
model where products are sold to distributors who then sell the products to
ultimate customers.
Products
We sell 26 different nutritional products, some of which are oral sprays;
21 different personal care products; an environmentally protective automotive
product, an environmentally friendly house cleaner and a flip top portable
drinking container which contains a filter to remove impurities from the water.
Our products are biodegradable and are not regulated by federal, state or local
environmental laws.
We do not have a return policy but we do provide a warranty for our
products. The specific warranty terms and conditions vary depending upon the
product sold, but generally include replacement of defective products, but no
refunds, during the six month period following a sale. Historically, our
warranty expenses have not been material.
Nutritional Products:
Our nutritional products are non-pharmaceutical nutritional products. They
are ingestible through oral liquids, oral sprays, tablets and tea. Our oral
sprays are delivered through very fine mist sprayed directly into the mouth. Our
containers used to deliver our nutritional products are small, compact and easy
to carry.
Our 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. We make no claims as to the products curing any medical
condition, or preventing any medical ailment.
1. Zeolite Plus: An oral liquid designed to detoxify the body, support
immune system strength and normalize pH in the body.
2. 2006 Celprotect I: Ingestible tablets designed to eliminate toxins and
viruses (e.g., cold sores) and promote energy.
3. 2007 Celprotect II Bullet Points: An oral liquid designed to stimulate
cellular metabolism, neutralize toxins, assist in avoiding food poisoning,
balance cell life and boost energy.
4. 2006 - 2007 Celprotect I: A kit containing 2006 Celprotect I and 2006 -
2007 Celprotect II.
5. CardioSupport: An oral spray designed to promote heart health.
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6. Colloidal Silver: An oral liquid designed to combat bacterial, fungal
and viral infections.
7. Colostrum: An oral spray designed to promote anti-aging, weight loss and
immune system support.
8. Deer Antler Velvet Plus: An oral spray designed to promote white blood
cell count and to help the body handle stress and promote recovery from the
effects of injury and fatigue.
9. Essential 90+: An oral spray designed to promote overall health.
10. GlucoBalance: An oral spray designed to maintain proper levels of blood
sugar for good health.
11. Liver Support: An oral spray designed to cleanse the liver and rebuild
damaged tissue.
12. Memory Plusb: An oral spray designed to overcome the natural processes
associated with aging and enhance healthy cognitive ability.
13. MSM (Methylsulfonymethane): An oral spray designed to rebuild
connective tissue and joints.
14. Perform Plus: An oral spray designed to promote endurance, performance
and increased libido.
15. Re-Live Again: An oral spray designed to increase the release of Human
Growth Hormone within the body to increase energy and endurance.
16. ReishiPlus: An oral sp ray designed to help lower blood pressure and
decrease elevated cholesterol and triglyceride levels and support the immune
system.
17. Rooibos Tea: A popular South African tea believed to promote anti-aging
and immune system health.
18. Slim'n Easy: An oral spray designed to promote and sustain weight loss.
19. Slumber Plus: An oral spray designed to aid sleep.
20. Spray-EEZE: An oral spray designed to alleviate colds and sore throats.
21. Super Hydro-Oxy: An oral liquid designed to revitalize and detoxify the
human body.
22. Super Re-Vitalizer: An oral spray designed to promote overall health.
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23. Super Silica: An oral liquid designed to support bones, arteries,
connective tissue, healthy hair, skin and nails.
24. Super Cal: An oral spray designed to promote bone health.
25. Vision Plus: An oral spray designed to nourish the eyes.
26. 2008 Vinegar Tablet: A pill containing Pectin and Acidic Acid which
relives acid reflux and helps decrease the risk of heart diseases. Vinegar is
high in Potassium and Potassium foods are known to play a role in lowering high
blood pressure.
Personal Care Products:
1. Bust Cream: An herbal cream containing natural ingredients for the
purpose of stimulating the development of the breast tissue and tightening and
firming of the breast.
2. Daily Eye Treatment: A soothing and hydrating eye cream for the purpose
of reducing puffiness, fine lines and the effects of stress and fatigue.
3. Lip gloss: A long lasting moisturizing lipstick.
4. Pressed Mineral Powder: A multi-functional face power containing zinc,
Vitamins A and E and green tea extract.
5. Fountain of Youth: A daily skin care regimen including a synergistic
blend of 10 oriental herbs for the purpose of skin brightening, cleaning, and
anti-wrinkle effects.
6. Gold Cream: A topical cream containing colloidal gold for the purpose of
relieving pain associated with arthritis, stiff and swollen joints, sprains,
strains, muscle spasms, bursitis and tendonitis.
7. Instant Whitening Cream: A cream for the purpose of brightening overall
complexion, lightening age spots, liver spots and sun damaged skin.
8. Lifting Masque: A 20 minute masque for the purpose of reducing the
visible signs of aging while lifting, tightening, and refining the pores of the
skin.
9. Perfume set: A floral fragrance perfume.
10. Nia 3 Plus 1 Lash & Line: Mascara and eyeliner package containing two
items in each tube: dark brown mascara and navy blue mascara in one tube and
black mascara and black eyeliner in the other tube.
11. Nia Concealer: A light colored concealer for the purpose of providing
coverage for any skin imperfection as in darkness around the eyes, blemishes and
to even out skin tones.
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12. Nia Eye Color: A palette of four color-coordinated eye shadows: Pearl
grey, Soft pink, Cranberry and Charcoal.
13. Nia Face and Body Powder: A jar containing face and body powder and a
powder puff.
14. Nia Lip Magic: A lip gloss. Colors include Celebration Red with Pink
shimmer and Plum Raisin with Peach shimmer.
15. Progesterone Cream: A non-pharmaceutical cream containing natural
ingredients for menopausal and postmenopausal women.
16. Rooibos Tea Cream: A skin cream containing Alpha-Hydroxy acids,
antioxidant, Vitamin B, Vitamin C and Vitamin E, Zinc, Potassium, Calcium,
Copper and DHEA.
17. The Collection: A makeup kit containing Face Primer, Silk Whipped
Foundation, Wet/Dry Powder, Eye Shadow, Black Eye Pencil, Pressed Shimmer
Powder, Shimmer Blush, Long Lasting Lipstick, Lip Gloss Palate, Cream Lipstick,
and Coordinating Lip Pencils.
18. Travel Kits: An Anti-Aging Skin Care Travel Kit containing products
designed for balancing skin tone, increasing hydration, diminishing lines and
wrinkles and restoring resiliency.
19. 4029 Sunscreen UV: Enhanced SPF 50 power that provides protection
against harmful UVA and UVB rays.
20. 4030-1 Facial Hair Removal: An organic facial hair removal that also
moisturizes with an organic Aloe Vera base.
21. 4030-2 Body Hair Removal: Organic Aloe Vera formula with Sunflower Seed
Oil removes unwanted body hair quickly and pain free.
Automotive Additive Products:
We currently offer the following one automotive product:
Fast Team Plus: A fuel additive that acts as a lubricant and cleaning
compound and has been found to significantly improve gas mileage and performance
and reduce smog in all gasoline powered engines.
Environmentally Friendly Home Cleaning Product:
Natural Clean: A 100% biodegradable multi-purpose cleaning solution that
aids in the clean-up and removal of a number of different stains and spills
including grease, tar, crayons, pet stains, soap film, blood, ink and make-up.
Natural Clean is non-toxic, non-caustic, non-pollutant, non-flammable and
non-rusting and can be used for cleaning kitchens, baths and cars as well as
being used as an insect repellant when applied on skin or clothing.
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Other:
Flip-Top Portable Filter: A 24-ounce drinking container in a portable tote
and featuring a filtration system.
Manufacturing
We do not own any manufacturing facilities. Our products are manufactured
by third party vendors and are packaged under our brand. The packaging for our
products clearly states the country of manufacture, which currently is the
United States in most cases. We do not have any long-term supply contracts or
agreements with any manufacturers. We order our products directly from vendors,
on an "as-needed" or "expected need" basis.
Raw materials used in the manufacture of our products are readily
available and are not in short supply. We are not a party to any agreement for
the purchase or delivery of raw materials.
None of our vendors account for a significant portion of our business and
can be replaced on short notice. We do not have any binding commitments or
manufacturing agreements with any of our vendors.
Sales
We only sell our products to Affiliates through our website. To become an
Affiliate, a customer must be recommended by another Affiliate, make a minimum
purchase of $300, and pay $30 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 our Affiliates so they can
learn more about our products and how to use them.
As of May 31, 2010, we had approximately 1,099,900 registered affiliates,
most of which were located in China and Hong Kong. As of May 31, 2010, we did
not have any sales activities in the United States. None of our Affiliates
account for a significant portion of our business.
We pay our Affiliates a commission on the products they order from us. The
commission is approximately 60% of the total dollar amount of the order. The
commissions earned by each Affiliate are held in book entry form. The Affiliate
can use the commissions in his or her account to pay for new orders or can
transfer the commissions to a bank account where they can be withdrawn, in local
currency, at automated teller machines (ATM's) in the country where the
Affiliate resides. With this process, we reduce operating expense and eliminate
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 our third party manufacturers to our distribution center in Hong
Kong. Once received at the distribution center, the products are shipped to the
Affiliate placing the order. We are in the process of establishing operations in
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Europe, Thailand, Vietnam and South America from which products may be shipped
if we determine there is sufficient demand.
Competition
The nutritional supplement and cosmetic e-business markets have and
continue to become increasingly competitive and are rapidly evolving. In
addition, the internet online commerce market is rapidly evolving and intensely
competitive. Barriers to entry are minimal and current and new competitors can
launch new websites at a relatively low cost. Continued advancement in
technology and increasing access to that technology is paving the way for growth
in the internet consumer industry. We also face competition for consumers from
retailers, duty-free retailers, specialty stores, department stores and
specialty and general merchandise catalogs, many of which have greater financial
and marketing resources than we have. We believe that, with our marketing plan
of supplying American merchandise brands to Asian consumers, as well as our
exposure to both the Asian and American cultures, we have a competitive
advantage in the Asian consumer market.
Government Regulation
Currently, government approval is not necessary for the sale of any of our
products and our Affiliate marketing activities are not subject to governmental
regulation in the countries in which we operate. However, if existing laws
change, we may be required to conduct clinical trials to demonstrate the safety
and efficacy of these products in order to continue to market and sell them.
Intellectual Property
Our product formulations, delivery systems (spray), packages, packaging
design and labels are proprietary.
We use the "EFT" name, a trademark owned and licensed to us by EFT Assets
Limited. We are required to pay an annual royalty to EFT assets equal to a
percentage of our gross sales for the previous fiscal year. The percentage is 5%
for the first $30 million in gross sales, 4% for the $10 million in gross sales
in excess of $30 million, 3% for the $10 million in gross sales in excess of $40
million; 2% for the $10 million in gross sales in excess of $50 million; and 1%
for the $10 million in gross sales in excess of $60 million. EFT Assets Limited
is owned by a number of persons, including Wendy Qin. Ms. Qin is the Chief
Executive Officer of one of our subsidiaries and is the sister of Jack Jie Qin,
our President. Except for the foregoing, we do not currently hold any patents,
trademarks, or copyrights nor are we a party to any licenses, franchises,
concessions, royalty agreements or similar agreements pertaining to intellectual
property.
Reverse Auction Program
In 2009 we developed a "reverse auction" program as a means of attracting
younger members who typically would not otherwise become an Affiliate. The
reverse auction is unlike an ordinary auction, also known as a forward auction,
where bidders bid the price up and the highest bidder wins that product at the
conclusion of bidding. In a reverse auction the objective is to bid the price of
a product down.
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Cars, laptop computers, cameras, television sets and many other products
are offered through the reverse auction program at starting bid prices which are
typically set at 25% of the manufactures suggested retail price.
To participate in the reverse auction, one must initially purchase 300
bids at a price of $1.00 per bid. The purchase of the 300 bids automatically
qualifies the purchaser as an Affiliate, with no purchase of our products is
required. All bids are non-refundable once purchased.
Once the reverse auction for a particular product begins, participants
can, through a designated website, enter a bid for the product. Each $1.00 bid
lowers the price of the product by $0.01. At the conclusion of the auction, the
person who entered the last bid is entitled to buy the product at the price
reduced by the auction process.
Excalibur International Marine Corporation
On October 25, 2008, we acquired, through a wholly owned subsidiary,
48.81% of the capital stock of Excalibur International Marine Corporation, a
Taiwan corporation, for $19,193,000. The remaining 51.19% equity interest is
held by Taiwan residents.
Excalibur owns and operates a high speed ship which transports passenger
and cargo between Taiwan and mainland China through the Taiwan Straight.
Excalibur's ship, the OceanLaLa, can carry up to 370 passengers and 630
tons of cargo.
The OceanLaLa made its first voyage in October 2008, sailing from Taichung
to Panhu, Taiwan. The OceanLaLa was taken out of service between mid-March, 2010
and early May, 2010 for repairs, and resumed sailings on May 13, 2010. The
OceanLaLa operates on a charter schedule and currently makes six trips each week
to Panhu. Excalibur is scheduling at least four additional trips a week from
Taichung to Xiaman.
Excalibur, since it owns a ship which operates in the Taiwan Strait, is
subject to an agreement between Taiwan and China which provides that Taiwan
citizens must own at least 67% of the capital stock of Excalibur. Accordingly,
we may be required to reduce our holdings in Excalibur by 15.8%.
We did not have any affiliation with Excalibur's officers, directors or
principal shareholders prior to our acquisition of Excalibur.
Digital Development Partners, Inc.
In February 2010 we assigned the worldwide distribution and servicing
rights to a product known as the "EFT-Phone" to Digital Development Partners,
Inc. in exchange for 79,265,000 shares of Digital's common stock. The shares we
acquired represent approximately 92% of Digital's outstanding common stock.
The EFT-Phone consists of a cell phone which uses the Microsoft Operating
System. The EFT-Phone has an application that will allow our Affiliates to
access all of their back office sites, including their commission accounts,
through which the Affiliates will be able to deposit, withdraw and transfer
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money to another account or to another Affiliate at no cost. The EFT-Phone will
have educational applications and PowerPoint presentation capability for
recruiting and training new Affiliates anywhere in the world.
The worldwide distribution and servicing rights to the EFT-Phone include
the right to sell the EFT-Phone to our affiliates and others. Servicing includes
the collection of service fees for all EFT-Phones worldwide, including monthly
fees, usage fees, as well as call forwarding, call waiting, text messaging and
video fees. Digital also acquired the rights to distribute all EFT-Phone
accessories.
The EFT-Phone will be manufactured by Noble Oriental Technology Co., Ltd.
Digital expects to begin distributing EFT-Phones in July, 2010.
General
We have not and do not engage in any research and development activities
nor do we contemplate spending any material amount on such activities in the
foreseeable future.
Our business is not seasonal in nature.
As of May 31, 2010, we had five full-time employees at our executive
offices in the City of Industry, California and nine full-time employees at our
Kowloon, Hong Kong office. We adjust the number of employees from time to time
as necessary to meet the demand for our product.
None of our employees are represented by a collective bargaining
agreement. We believe our employee relations are good.
Our website address is www.eftb.net.
ITEM 1A. RISK FACTORS
Risk Factors
Investing in our securities involves risk. You should carefully consider
all of the information contained in or incorporated by reference into this
report and, in particular, the risks described below before investing in our
securities. If any of the following risks actually occur, our business could
suffer and may cause the market price of our common stock to decline.
Risks Related to Our Business
Current economic conditions may adversely affect our industry, business and
results of operations and could cause the market value of our common stock to
decline.
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 which we believe may include consumer spending on
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nutritional and beauty products and other discretionary items. In addition,
reduced consumer spending may drive us and our competitors to lower prices.
These conditions may adversely affect our business.
We regularly maintain cash balances at a commercial bank in excess of the
Federal Deposit Insurance Corporation insurance limit of $250,000.
We regularly maintain cash balances at a commercial bank in excess of the
Federal Deposit Insurance Corporation (FDIC) insurance limit of $250,000. If the
financial position and/or liquidity of the bank were to become impaired, our
financial position and the results of our operations could be negatively
affected to the extent of account balances held at the financial institution in
excess of the federally insured limit.
The extent of our sourcing and manufacturing may adversely affect our business,
financial condition and results of operations.
All of our products are currently manufactured in the United States and a
majority of them are sold to customers in Hong Kong and China. As a result of
the magnitude of this sourcing and shipping, our respective businesses are
subject to the following risks:
o political and economic instability in foreign countries, including
heightened terrorism and other security concerns, which could subject
imported or exported goods to additional or more frequent inspections,
leading to delays in deliveries or impoundment of goods, or to an
increase in transportation costs of raw materials or finished product;
o the imposition of regulations and quotas relating to exports and
imports, including quotas imposed by bilateral agreements between the
United States from where we source our products and foreign countries,
including China;
o the imposition of duties, taxes and other charges on exports and
imports;
o significant fluctuation of the value of the U.S. dollar against the
Hong Kong Dollar, Chinese Yuan and other foreign currencies;
o restrictions on the transfer of funds to or from foreign countries;
and
o violations by foreign contractors of labor and wage standards and
resulting adverse publicity.
We operate on very tight delivery schedules and, if there are delays and
expected delivery dates cannot be met, it could negatively affect our
profitability.
If there is a delay in the delivery of goods and delivery schedules cannot
be met, then our Affiliates and retail customers may cancel orders with us which
would impact our gross profits and therefore, our profitability. We may also
incur extra costs to meet delivery dates, which would also reduce our company's
profitability.
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We face intense competition and any failure to timely implement our business
plan could diminish or suspend our development and possibly cease our
operations.
From time to time in the Business to Consumer (B2C) e-commerce business,
competitors, typically catalog and other online retailers, will attempt to
secure contracts with various merchandise brands to offer merchandise to their
consumers. We also face competition for consumers from retailers, duty-free
retailers, specialty stores, department stores and specialty and general
merchandise catalogs, many of which have greater financial and marketing
resources than we have. The internet online commerce market is rapidly evolving
and intensely competitive. Barriers to entry are minimal and current and new
competitors can launch new websites at a relatively low cost. Many competitors
in this area have greater financial, technical and marketing resources than our
Company. Continued advancement in technology and increasing access to that
technology is paving the way for growth in the internet consumer industry. In
addition, the nutritional supplement and cosmetic e-business markets have and
continue to become increasingly competitive and are rapidly evolving. We believe
that we are well-positioned within the Asian consumer market with our current
marketing plan of supplying American merchandise brands to Asian consumers and
that our exposure to both the Asian and American cultures gives us a competitive
advantage but there can be no assurance that we will maintain our competitive
edge or that we will continue to provide only American made merchandise.
We face significant inventory risks.
We are exposed to significant inventory risks that may adversely affect
our operating results as a result of new product launches, rapid changes in
product cycles, changes in consumer tastes with respect to our products and
other factors. We must accurately predict these trends and avoid overstocking or
under-stocking products. All of our products are supplied by third parties which
we order generally on an "as needed" basis. However, based on ordering trends we
do stock certain items that we believe will be in demand so that they are
available for immediate shipping. In recent months we have mitigated decreases
in sales by lowering our levels of inventory to preserve cash on hand. Demand
for products, however, can change significantly between the time inventory is
ordered and the date of sale. In addition, when we begin selling a new product,
it may be difficult to establish vendor relationships, determine appropriate
product selection, and accurately forecast product demand. The acquisition of
certain types of inventory, or inventory from certain sources, may require
significant lead-time and prepayment, and such inventory may not be returnable.
Although we have significantly reduced inventory levels and primarily order
products on an as needed basis, any one of the inventory risk factors set forth
above may adversely affect our operating results.
We depend on third parties to manufacture all of the products we sell and we do
not have any contracts with any of the manufacturers of our products. If we are
unable to maintain these manufacturing relationships or enter into new
arrangements, we may fail to meet customer demand and our net sales and
profitability may suffer as a result.
All of our products are manufactured by third parties. We don't have any
contracts with any of the manufacturers of our products. The fact that we do not
have contracts with our third-party manufacturers means that they could cease
manufacturing these products for us at any time and for any reason. In addition,
our third-party manufacturers are not restricted from manufacturing our
competitors' products. Our inability to secure adequate and timely supplies of
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merchandise would harm inventory levels, net sales and gross profit, and
ultimately our results of operations.
Our manufacturers may increase the cost of the products we purchase from them.
If our manufacturers increase their costs, our margins would suffer unless
we were able to pass along these increased costs to our customers. We may not be
able to develop relationships with new vendors and manufacturers at the same
prices or at all, and even if we do establish such relationships, such new
vendors and manufacturers might not allocate sufficient capacity to us to meet
our requirements. Furthermore, if we increase our product orders significantly
from the amounts we have historically ordered from our manufacturers, our
manufacturers might be unable to meet this increased demand.
Our third-party manufacturers may not continue to produce products that are
consistent with our standards or applicable regulatory requirements, which could
harm our brand, cause customer dissatisfaction and require us to find
alternative suppliers of our products.
Our third-party manufacturers may not maintain adequate controls with
respect to product specifications and quality and may not continue to produce
products that are consistent with our quality standards. If we are forced to
rely on products of inferior quality, then our customer satisfaction and brand
reputation would likely suffer, which would lead to reduced net sales. In
addition, we may be required to find new third-party manufacturers to supply our
products. There can be no assurance that we would be successful in finding
third-party manufacturers that make products meeting our standards of quality.
We are subject to the risks of doing business abroad.
Most of our Affiliates are currently located in China and Hong Kong. As
such, we are subject to the usual risks of doing business abroad, including
currency fluctuations, political or labor instability and potential import
restrictions, duties and tariffs. We do not maintain insurance for the potential
lost profits due to such disruptions. Political or economic instability in the
China or Hong Kong or elsewhere could cause substantial disruption in our
business. This could materially adversely affect our financial condition and
results of operations. Heightened terrorism security concerns could subject
exported goods to additional, more frequent or more thorough inspections. This
could delay deliveries or increase costs, which could adversely impact our
results of operations. In addition, since we negotiate our purchase orders with
customers in United States dollars, the value of the United States dollar
against local currencies could impact our cost in dollars of production from
these manufacturers. We are not currently engaged in any hedging activities to
protect against these currency risks. If there is downward pressure on the value
of the dollar, our customers' purchase prices for our products could increase.
We may not be able to offset an increase in production costs with a price
increase to our customers.
Fluctuations in the price, availability and quality of materials used in our
products could have a material adverse effect on our cost of goods sold and our
ability to meet our customers' demands.
Fluctuations in the price, availability and quality of the materials used
in the manufacture of our products by third parties could have a material
adverse effect on the cost of such products to us or our ability to meet our
14
customers' demands. We may not be able to pass on all or any portion of higher
material prices to our customers.
The failure to upgrade information technology systems as necessary could have an
adverse effect on our operations.
Some of our information technology systems, which are primarily utilized
to manage information necessary to price and ship products and to generate
reports that report each customer's order are dated and are comprised of
multiple applications, rather than one overarching state-of-the-art system.
Modifications involve replacing legacy systems with successor systems, making
changes to legacy systems or acquiring new systems with new functionality. If we
are unable to effectively implement these systems and update them where
necessary, this could have a material adverse effect on its business, financial
condition and results of operations.
We are highly dependent on our current management.
Our success is significantly dependent upon our management team. Our
success is particularly dependent upon Mr. Jack Qin, our Chairman, CEO, and
Principal Financial Officer, and Mr. George Curry, Chief Marketing Officer and
Director. The loss of any of them could have an adverse effect on us. If we were
to lose the services of our officers and directors, we may experience
difficulties in effectively implementing our business plan.
Our principal shareholder owns 68.57% of our outstanding common stock.
Dragon Win Management, Ltd. owns a majority of our issued and outstanding
common stock. As a result, the management of Dragon Win can approve or reject
all matters for which shareholder approval is required, including mergers,
acquisitions, sales of assets, amending our Articles of Incorporation and
electing our Directors.
Our stock is thinly traded and the price of our stock may become highly
volatile.
There is currently only a limited market for our common stock. A limited
market is characterized by a relatively limited number of shares in the public
float, relatively low trading volume and a small number of brokerage firms
acting as market makers. The market for low priced securities is generally less
liquid and more volatile than securities traded on national stock markets. Wide
fluctuations in market prices are not uncommon. No assurance can be given that
the market for our common stock will continue. The price of our common stock may
be subject to wide fluctuations in response to factors such as the following,
some of which are beyond our control:
o Quarterly variations in our operating results;
o Operating results that vary from the expectations of securities
analysts and investors;
o Changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o Reaction to our earnings releases and conference calls, or
presentations by executives at investor and industry conferences;
15
o Changes in our capital structure;
o Changes in market valuations of other internet or online service
companies;
o Announcements of innovations or new services by us or our competitors;
o Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o Lack of success in the expansion of our business operations;
o Announcements by third parties of significant claims or proceedings
against us or adverse developments in pending proceedings;
o Additions or departures of key personnel;
o Rumors or public speculation about any of the above factors; and
o Market and volume fluctuations in the stock markets in general.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our principal executive office consists of 6,500 square feet and is
located at PlaceNameplaceLangham PlaceNameOffice PlaceTypeTower, addressStreet8
Argyle Street, Suite 3706, CityKowloon, Hong Kong SAR. This space is leased from
a third party pursuant to a lease commencing on March 31, 2007 and expiring on
March 31, 2012. Pursuant to the lease, there is no rent for the first two years.
Commencing on the third year of the lease, the monthly rent is $50,000 USD. We
expense the total rent evenly over the life of the lease.
We also lease a 3,367 square foot office in the City of Industry in
California. The lease expires on February 15, 2013. Pursuant to the lease, the
monthly rent for the three years is $9,090, $9,454 and $9,832 respectively.
We also lease a number of small offices (generally 3,000 square feet or
less) to support our training, service center and auction product divisions.
These offices, which are located in China, Hong Kong, Vietnam and Thailand, are
leased for terms of two years or less. See Note 17 of our March 31, 2010
financial statements included as part of this report for information concerning
the amounts we are required to pay pursuant to these leases.
We believe our properties are sufficient for our current operations.
ITEM 3. LEGAL PROCEEDINGS.
We do not know of any claims, pending or threatened against us.
16
Our subsidiary, Excalibur International Marine Corporation, is involved in
the following legal proceedings:
Excalibur filed a lawsuit against Jiao Ren-Ho (former chairman of
Excalibur) in the Taiwan Shihlin District Prosecutors office in February 2010.
Excalibur alleges, among other things, that Jiao Ren-Ho committed the offences
of capital forging, fraud, breach of trust, and document fabrication.
Excalibur filed a lawsuit against Chang Hui-Ying, Excalibur's former
accountant in the Taiwan Shihlin District Prosecutors office in March 2010. The
claims of Excalibur against Chang Hui-Ying are based upon the audit of
Excalibur's financial statements by Chang Hui-Ying. Excalibur alleges, among
other things, that Chang Hui-Ying committed the offences of capital forging,
fraud, breach of trust, and document fabrication.
Excalibur filed a lawsuit against Hsiao Zhong-Xing (former general manager
of Excalibur) and Lu Zhuo-Jun (former general manager of Excalibur)
(collectively "Defendants") in the Taiwan Shihlin District Prosecutors office.
Excalibur alleges, among other things, that Defendants committed the offences of
capital forging, fraud, breach of trust, and document fabrication.
Gu Zong-Nan (former vice general manager of Excalibur) filed a lawsuit
against Excalibur in the Taiwan Shihlin District Court claiming unpaid salary
(NTD 1,050,000) and severance payments (260,038 NTD). In April 2010, the Taiwan
Shihlin District Court denied the claims as the court found that (i) there was a
valid agreement between the parties that provided the salary owed by Excalibur
would not be paid until Excalibur makes profit from its operation and (ii) Gu
Zong-Nan held a managerial position in Excalibur and as a result is not entitled
to any severance payment according to the Labor Standard Law of Taiwan.
Excalibur has suffered net losses since inception, however, a contingent
liability for the unpaid salary remains.
Marinteknik Shipbuilder(s) PTE LTD. (a Singapore company) filed a lawsuit
against Excalibur in the Taiwan Taichung District Court for unpaid service fees
and out-of-pocket expenses of NTD 8,050,832. On August 20, 2009, the Taiwan
Taibei district court froze Excalibur's cash of $193,992 in response to the
suit. The final resolution of this case is pending.
Jiao Ren-Ho (former chairman of Excalibur) filed a lawsuit against
Excalibur in the Taiwan Shihlin District Court claiming Excalibur's special
meeting of shareholders held on January 12, 2010, and the actions taken at the
meeting, including the removal of Mr. Jiao as an officer and the chairman of
Excalibur, were unlawful. Monetary damages were not claimed in the suit. The
resolution of this case is pending.
ITEM 4. (REMOVED AND RESERVED)
17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock trades on the over-the-counter Pink Sheets. The following
chart shows the high and low bid prices as published by Pink OTC Markets for the
periods shown below. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Three Months Ended Low Bid High Bid
------------------ ------- --------
June 30, 2008 $5.25 $5.25
September 30, 2008 $3.90 $3.95
December 31, 2008 $3.70 $3.80
March 31, 2009 $2.75 $2.75
June 30, 2009 $2.05 $5.50
September 30, 2009 $3.01 $5.67
December 31, 2009 $2.18 $5.11
March 31, 2010 $1.80 $3.02
The holders of our common stock are entitled to one vote per share. Our
stockholders do not have preemptive rights to purchase, subscribe for, or
otherwise acquire any shares of our common stock.
We did not pay any dividends during the two years ended March 31, 2010.
Our Board of Directors is not restricted from paying any dividends but is not
obligated to declare a dividend. We currently intend to retain all future
earnings for use in the operation and expansion of our business and do not
anticipate paying any cash dividends on common stock in the foreseeable future.
Our Articles of Incorporation authorize our Board of Directors to issue up
to 25,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow our directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of our common
stock. The issuance of preferred stock with these rights may make the removal of
management difficult even if the removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if these
transactions are not favored by our management.
During the year ended March 31, 2010 we did not purchase any shares of our
common stock from third parties in a private transaction in the open market.
During the year ended March 31, 2010 none of our Officers or Directors, or any
of our principal shareholders, purchased any shares of our common stock on our
behalf from third parties in a private transaction or as a result of purchases
in the open market.
As of May 31, 2010, there were 29,821 record holders of our common stock.
18
Comparison of One Year Cumulative Total Return Among EFT Biotech Holdings, Inc.,
and the NYSE Amex Composite Index
Our common stock has been registered under Section 12 of the Securities
Exchange Act of 1934 since February 9, 2009 and has been trading on the Pink
Sheets since November 7, 2007. The following graph compares the year total
return to the holders of our common stock relative to the total return of the
NYSE Amex composite index during the year ended March 31, 2010. The graph
assumes that the value of the investment in our common stock and in the NYSE
Amex composite index (including reinvestment of dividends) was $100 on March 31,
2009 and tracks it through March 31, 2010.
March 31, March 31,
2009 2010
-----------------------
EFT Biotech Holdings, Inc. 100.00 84.80
NYSE Amex Composite 100.00 140.22
Assumes $100 invested on March 31, 2009 in stock or index, including
reinvestment of dividends.
The stock price performance included in this graph is not necessarily
indicative of future stock price performance.
Item 6. Selected Financial Data.
The following selected historical consolidated financial data are
qualified by reference to, and should be read in conjunction with the
consolidated financial statements and the related notes, appearing elsewhere in
this report, as well as Item 7 of this report.
Years ended March 31,
--------------------------------------------------------------------
Statements of Operations 2010 2009 2008 2007 2006
- ------------------------ --------------------------------------------------------------------
unaudited
Revenue $ 20,782,394 $ 18,504,434 $ 40,359,662 $ 19,844,776 $ 4,036,115
Operating expenses:
General and administrative $ 9,230,462 $ 8,929,162 $ 3,693,369 $ 1,690,293 $ 787,588
Other income (expense) $(13,407,867) $ 540,739 $ 326,194 $ 11,566 $ 1,501
Other costs of financing
Interest income $ 546,471 $ 1,246,433 $ 275,538 $ 22,819 $ 1,501
Interest expense
Net income (loss) before
extraordinary loss $ (7,946,447) $ 2,128,662 $ 20,795,695 $ 10,063,293 $ (134,116)
Net income (loss) available
to common shareholders $ (7,845,916) $ 2,128,662 $ 20,795,695 $ 10,063,293 $ (134,116)
Net income (loss) per common
share
Basic (0.10) 0.03 0.37 0.17 --
Diluted (0.10) 0.03 0.37 0.17 --
Weighted average common
shares outstanding
Basic 75,983,205 66,637,448 55,350,545 59,821,414 59,821,414
Diluted (1) 75,983,205 66,637,448 55,350,545 59,821,414 59,821,414
19
March 31,
--------------------------------------------------------------------
Balance Sheets 2010 2009 2008 2007 2006
- ------------------------ --------------------------------------------------------------------
unaudited
Current Assets $42,622,026 $49,215,227 $19,414,774 $2,722,521 $1,076,198
Total assets $65,744,747 $68,666,322 $57,427,420 $2,826,369 $1,198,307
Current Liabilities $12,165,048 $12,276,962 $55,687,992 $3,195,557 $1,191,744
Total liabilities $15,070,005 $12,276,962 $55,687,992 $3,195,557 $1,191,744
Working capital $30,456,978 $36,938,265 $(36,273,218) $(3,195,557) $(1,191,744)
Stockholders' equity (deficit) $50,674,742 $56,389,360 $ 1,739,428 $ (369,188) $ 6,563
Our net income (losses) for each fiscal quarter during the two years ended
March 31, 2010 were:
Net income (loss) per share
Net income ----------------------------
Quarter (loss) Basic Diluted
6/30/2008 $ 2,964,581 0.05 0.05
9/30/2008 $ 2,772,339 0.05 0.05
12/31/2008 $ 530,812 0.01 0.01
3/31/2009 $ 2,128,662 0.03 0.03
6/30/2009 $ (407,924) (0.01) (0.01)
9/30/2009 $ 1,873,715 0.02 0.02
12/31/2009 $ 521,479 0.01 0.01
3/31/2010 $(7,324,437) (0.10) (0.10)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
We believe that our Business to Customer business is robust and that
consumers have become more confident in ordering products, like ours, over the
internet. However, the nutritional supplement and cosmetic e-business markets
have and continue to become increasingly competitive and are rapidly evolving.
Barriers to entry are minimal and current and new competitors can launch new
websites at a relatively low cost. Many competitors in this area have greater
financial, technical and marketing resources than we do. Continued advancement
in technology and increasing access to that technology is paving the way for
growth in direct marketing. We also face competition for consumers from
retailers, duty-free retailers, specialty stores, department stores and
specialty and general merchandise catalogs, many of which have greater financial
and marketing resources than we have. Notwithstanding the foregoing, we believe
that we are well-positioned within the Asian consumer market with our current
plan of supplying American merchandise brands to consumers and that our exposure
to both the Asian and American cultures gives us a competitive advantage. There
can be no assurance that we will maintain our competitive edge or that we will
continue to provide only American made merchandise.
Our products are sensitive to business and personal discretionary spending
levels and tend to decline or grow more slowly during economic downturns,
including downturns in any of our major markets. The current worldwide recession
is expected to adversely affect our sales and liquidity for the foreseeable
future. Although we have mitigated decreases in sales by lowering our levels of
inventory to preserve cash on hand, we do not know when the recession will
subside and when consumer spending will increase from its current depressed
levels. Even if consumer spending increases, we are not sure when consumer
spending will increase for our products which will affect our liquidity.
20
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 include spending on nutritional and
beauty products and other discretionary items, such as our products. In
addition, reduced consumer spending may force us and our competitors to lower
prices. These conditions may adversely affect our revenues and profits.
Results of Operations
Material changes in our Statement of Operations for the periods presented
are discussed below:
Year Ended March 31, 2010
Increase (I) or
Item Decrease (D) Reason
- ---- --------------- ------
Sales revenue, net I Sales are recorded net of the commissions
we pay the Affiliates who are responsible
for the sales. We lowered the commission
payout to our Affiliates by approximately
15% during the fiscal year ended March
31, 2010. The reduction in commissions
increased our sales revenue.
Shipping charges D We do not collect shipping fees
for the sales made through our reverse
auction programsince products sold under
this program are shipped directly by the
manufacturer of the product.
Gross Profit I Gross profit, as a % of total revenue,
as a % of total revenue was 71% during fiscal 2010 compared to
57% during the year ended March 31, 2009.
The increase in our gross percentage was
the result of increased sales revenue.
Sales revenue increased due primarily to
a change in the amount of commissions we
paid our affiliates, and not as a result
of increased product sales. If sales
revenue increased primarily as a result
of product sales, there would have been a
corresponding increase in cost of goods
sold as well as shipping costs.
Selling, general and
administrative expenses I Professional fees incurred in
revising our registration statement on
Form 10 and our 10-K and 10-Q reports to
respond to comments we received from the
Securities and Exchange Commission.
Interest income D Decline in interest rates.
21
Loss on equity method
of Excalibur I We did not acquire our interest in
Excalibur until October 2008. As a
result, we reflected our share of
Excalibur's losses for only part of
our year ended March 31, 2009. The
equity method was used for our investment
in Excalibur for the nine months ended
December 31, 2009 and for the year ended
March 31, 2009. For the three months
ended March 31, 2010 and as of March 31,
2010, Excalibur's financial statements
were consolidated with our financial
statements and all inter-company accounts
and transactions were elimina-ted in
consolidation.
Foreign exchange loss I Changes in foreign exchange rates.
Other income, net D Other income represents fees received for
educational training classes conducted by
the Company. During the year ended March
31, 2010 group leaders conducted more of
the classes and we did not receive any
fees for the classes conducted by the
group leaders.
22
Year Ended March 31, 2009
Increase (I) or
Item Decrease (D) Reason
- ---- --------------- ------
Sales revenue, net D We experienced a decrease in gross
revenues due to the worldwide recession
and the general slowdown in personal
consumption that affected the Chinese in
general. In addition, we increased our
initial cost to become an affiliate
from $250 to $300 in July 2008. This
increase may have contributed to a
decrease in sales as some customers may
have considered this increase to be too
expensive.
Shipping charges D Decreased sales.
Gross Profit as a % D Gross profit, as a % of total revenue,
of total revenue was 57% during the year ended March 31,
2009 as compared to 61% during the year
ended March 31, 2008. The slight decrease
in our gross profit % was the result of
the distribution of products for
promotional purposes (for which we did
not receive any revenue) during the year.
Selling, general and
administrative expenses I Professional fees incurred in
connection with our Regulation S private
offering and royalty fees accrued for the
use of the "EFT" trademark, which we
first began to pay in April 2008.
Interest income I Increase in cash balances as a
result of the sale of our shares in a
Regulation S offering.
Loss on equity method
of Excalibur I We acquired our interest in Excalibur in
October 2008. We did not have any
interest in Excalibur during the year
ended March 31, 2008.
Foreign exchange income I Changes in foreign currency exchange
rates.
Other income, net I Other income, net consists of fees
received for educational training
classes and increased due to additional
classes held.
23
Capital Resources and Liquidity
Material changes in our balance sheet items between March 31, 2010 and
March 31, 2009 are discussed below:
Increase (I) or
Item Decrease (D) Reason
- ---- --------------- ------
Inventories D Decrease in sales.
Prepaid expenses D Less prepaid expenses to
vendor at year ended March 31, 2010.
Short term note receivable, I Loans to Excalibur are no longer shown
related party due to the consolidation of Excalibur's
financial statements as of March 31,
2010. As a result of the consolidation,
all inter-company accounts were
eliminated.
Property and equipment, net I As a result of the consolidation of
Excalibur's financial statements, as of
March 31, 2010 Excalibur's property and
equipment are now included in this
category.
Equity method investment D As a result of the consolidation of
Excalibur's financial statements as of
March 31, 2010, we no longer account for
our investment in Excalibur using the
equity method
Investments in bonds I We used some of our excess cash to invest
in bonds during the year ended March 31,
2010.
Security deposits I Security deposits are amounts
paid to owners of properties we lease. In
fiscal 2010 we leased more properties for
our satellite training centers.
Accounts payable D Trademark royalties accrued at March 31,
2009 were paid during the year ended
March 31, 2010.
Unearned revenues I Temporary delay in deliveries
of product to Affiliates resulted in
higher unearned revenues.
Contingent liabilities I The financial statements of
Excalibur, together with its contingent
liabilities, were consolidated with our
financial statements as of March 31,
2010. See Note 12 to the financial
24
statements included as part of this
report for information concerning these
contingent liabilities.
Non-controlling Interest I This item represents the
interests in Excalibur and Digital
Development Partners owned by others. We
did not consolidate Excalibur until March
31, 2010 and we did not acquire Digital
until February 2010.
Between January and August of 2008 we sold 14,890,040 Units to non-U.S.
residents at a price of $3.80 per Unit. The Units were sold pursuant to the
exemption provided by Regulation S of the Securities and Exchange Commission.
Each Unit consisted of one share of our common stock and one warrant. Each
warrant is exercisable to purchase one share of common stock for a price of
$3.80 per share until the second anniversary date of the date of issuance. We
can redeem the warrants, on a pro rata basis, at a price of $0.0001 per warrant
within 30 days from the 10th consecutive trading day that the closing sales
price, or the average of the closing bid and asked price of our common stock
trades on the OTC, or any public securities market within the USA, is at least
$11.
We used $19,193,000 from the sale of the Units to purchase our 48.81%
interest in Excalibur International Marine Corporation.
We believe that our cash on hand and cash generated from our operations
will satisfy our capital requirements through May 31, 2011.
Yeuh-Chi Liu, a supplier of our spray bottles, borrowed $1,567,000 from us
in July 2008. The loan is non-interesting bearing and is payable upon demand.
The loan, which was outstanding at May 31, 2010, is secured by Yeuh-Chi Liu's
3.97% ownership interest in Excalibur International Marine Corporation.
Since July 2008 we have made loans to Excalibur International Marine
Corporation. The loans were primarily used by Excalibur to acquire its ship, the
OceanLaLa, and to fund operating costs. As of March 31, 2010 we had the
following outstanding loans to Excalibur:
Principal Amount Interest Rate Due Date
---------------- ------------- --------
$ 1,564,717 0% Demand on demand
$ 2,000,000 8% November 25, 2010
$ 500,000 8% November 25, 2010
$ 600,000 8% November 13, 2010
$ 250,000 8% February 18, 2011
$ 510,000 8% November 13, 2010
$ 100,000 8% January 7, 2011
$ 120,000 8% February 1, 2011
$ 160,000 8% February 11, 2011
$ 140,000 8% March 10, 2011
Our material sources and (uses) of cash during the year ended March 31,
2010 were:
25
Cash provided (used) by operations $7,032,020
Cash acquired as a result of the consolidation
of Excalibur and Digital Development 824,859
Equipment purchases (993,800)
Loans to related parties (1,660,382)
Purchase of investment securities (4,800,184)
Other (200,517)
Our material sources and (uses) of cash during the year ended March 31,
2009 were:
Cash from (used by) operations $(4,355,756)
Equipment purchases (305,068)
Loans to related parties (5,961,717)
Purchase of interest in Excalibur Marine (19,193,000)
Sale of common stock and warrants 52,831,758
Future Contractual Obligations
Total 2011 2012 2013 2014 Thereafter
----- ---- ---- ---- ---- ----------
Lease payments $931,955 $532,543 $399,412 - - -
Other than as disclosed above, we do not anticipate any capital
requirements for the twelve months ending March 31, 2011.
We do not have any commitments or arrangements from any person to provide
us with any additional capital.
Except as disclosed in Item 1.A or this Item 7, we do not know of any trends or
demands that affected, or are reasonably likely to affect, our capital resources
or liquidity.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future effect on our financial
condition.
26
Significant Accounting Policies/Recent Accounting Pronouncements
See Note 2 to the financial statements included as part of this report for
a description of our significant accounting policies and recent accounting
pronouncements which have, or potentially may have, a material impact on our
financial statements.
Critical Accounting Policies and Estimates
Our financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions. We believe that the following are some of the more
critical judgment areas in the application of our accounting policies that
currently affect our financial condition and results of operations.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand, cash in bank deposits, and
certificates of deposit. We maintain our accounts in various banks. Cash on
deposit with several banks exceed the federally insured limit.
Inventories
- -----------
Inventories are valued at the lower of cost (determined on a first-in,
first-out basis) or market. Inventory consists of high tech nutritional,
cosmetic, automotive maintenance and environmentally safe products. We have two
warehouses, one in City of Industry, CA and the other in Kowloon, HK. On a
quarterly basis, we review inventory levels in each country for estimated
obsolescence or unmarketable items, as compared to future demand requirements
and the shelf life of the various products. Based on this review, we record
inventory write-downs when costs exceed expected net realizable value.
Historically, our estimates of the obsolete or unmarketable items have been
insignificant.
Notes Receivable
- ----------------
We periodically review notes receivable for reliability, collectability
and recent account activities. If our estimates regarding collectability are
inaccurate or an unforeseen matter occurs, we may be exposed to bad debts. As of
March 31, 2010, we did not have an allowance for bad debts.
Investment
- ----------
On October 25, 2008, we acquired, through our wholly-owned subsidiary EFT
Investment, a 48.81% equity interest in Excalibur for $19,193,000.
The equity method was used for this investment for the nine months ended
December 31, 2009 and for the year ended March 31, 2009. Excalibur became our
VIE in January 15, 2010. For the three months ended March 31, 2010 and as of
March 31, 2010, Excalibur's financial statements were consolidated with our
March 31, 2010 and December 31, 2009 financial statements, and all inter-company
accounts and transactions were eliminated in consolidation.
27
Revenue/Unearned Revenue
- ------------------------
Our revenue recognition policy is in accordance with the requirements of
Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, ("SAB 104"), ASC
Topic 605, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) ASC Topic 605 and other
applicable revenue recognition guidance and interpretations. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectibility is reasonably
assured. Transportation income is generated from 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 our Affiliates are considered to be a reduction of the selling prices of
our products, and are recorded as a reduction of revenue.
Unearned Revenues consist of cash received in advance for goods to be
delivered at a future date. We record the payments received from customers as a
liability until the products are delivered. Sales are recorded when the products
are delivered.
We have developed a reverse auction program, for the purpose of increasing
revenues by attracting new members to join our Affiliate program. In a reverse
auction the objective is to bid the price of a product down within a
predetermined time frame unlike an ordinary auction (also known as a forward
auction) where bidders bid the price up and the highest bidder wins the right to
buy the product at the conclusion of bidding. The reverse auction program was
beta-tested and introduced to all Affiliates in June 2009. All the bidders
acknowledge that they have read and understand the Terms and Conditions before
they can participate in the program. The bidders must purchase bids in advance
before entering the reverse auction program and these purchased bids are
non-refundable. Every bid has a fixed price of $1 and we only recognize revenue
when a bidder places a bid on an auction product. The reverse auction program
generated $1,233,005 in sales revenue during the year ended March 31, 2010.
Foreign Currency Translation
- ----------------------------
Our reporting currency is the U.S. dollar. Our operations in China, Hong
Kong and Taiwan use their local currencies as their functional currency. The
financial statements of our subsidiaries are translated into U.S. Dollars (USD)
in accordance with ASC Topic 830, Foreign Currency Translation. According to ASC
Topic 830, all assets and liabilities are translated at the year end current
exchange rate, stockholders equity items are translated at the historical rates
and income statement items are translated at the average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with ASC Topic 220, Reporting Comprehensive
Income as a Component of Stockholders Equity. Foreign exchange transaction gains
and losses are reflected in the income statement.
Income Taxes
- ------------
We use the asset and liability method of accounting for income taxes.
Under this method, income tax expense is recognized for the amount of taxes
payable or refundable for the current year. In addition, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
28
liabilities and for operating losses and tax credit carry-forwards. Management
must make assumptions, judgments and estimates to determine the current
provision for income taxes and the deferred tax assets and liabilities and any
valuation allowance to be recorded against a deferred tax asset. Management's
judgments, assumptions and estimates relative to the current provision for
income tax take into account current tax laws, management's interpretation of
current tax laws and possible outcomes of current and future audits conducted by
foreign and domestic tax authorities. Changes in tax law or management's
interpretation of tax laws and the resolution of current and future tax audits
could significantly impact the amounts provided for income taxes in our
financial statements. Management's assumptions, judgments and estimates relative
to the value of a deferred tax asset take into account predictions of the amount
and category of future taxable income, such as income from operations. Actual
operating results and the underlying amount and category of income in future
years could render management's current assumptions, judgments and estimates of
recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and
estimates mentioned above could cause our actual income tax obligations to
differ from the estimates, thus materially impacting the financial position and
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For our fiscal year ended March 31, 2010 all of our sales were made
outside of the United States. All of our sales are denominated in currencies
other than the United States dollar. In addition, from time to time we make
intercompany loans with our foreign subsidiaries that are denominated in foreign
currencies.
We are exposed to foreign currency risks that arise from normal business
operations. These risks include the translation of our local currency balances
and those of our foreign subsidiaries, intercompany loans with foreign
subsidiaries and transactions denominated in foreign currencies. It is our
policy not to enter into derivative financial instruments for speculative
purposes. We do not hedge our exposure to foreign currency fluctuations. A 10%
adverse change in the underlying foreign currency exchange rates would not be
significant to our financial condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Consolidated Financial Statements
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Changes in Stockholders' Equity F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Audit Committee
EFT Biotech Holdings, Inc.
City of Industry, California
We have audited the consolidated balance sheets of EFT Biotech Holdings, Inc.
(the Company) as of March 31, 2010 and 2009, and the related consolidated
statements of operations and changes in stockholders' equity and cash flows for
the years ended March 31, 2010, 2009, and 2008. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of EFT
Biotech Holdings, Inc. as of March 31, 2010 and 2009, and the consolidated
results of its operations and its cash flows for the years ended March 31, 2010,
2009, and 2008, in conformity with accounting principles generally accepted in
the United States of America.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), EFT Biotech Holdings, Inc.'s
internal control over financial reporting as of March 31, 2010, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 21, 2010 expressed an adverse opinion thereon.
/s/ Child, Van Wagoner & Bradshaw, PLLC
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
June 21, 2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Audit Committee
EFT Biotech Holdings, Inc.
City of Industry, California
We have audited the EFT Biotech Holdings Inc. and subsidiaries' (the Company)
internal control over financial reporting as of March 31, 2010, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Company's management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Management's Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of the internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the financial statement for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.
A material weakness is a control deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis. We
have identified the following material weaknesses of the company's internal
control over financial reporting which Management has not identified and
included in its assessment. These material weaknesses were considered in
determining the nature, timing, and extent of audit tests applied in our audit
of the March 31, 2010 financial statements, and this report does not affect our
report dated June 21, 2010 on those financial statements.
o The Company did not have sufficient internal controls to properly evaluate
revenue recognition criteria.
o The Company did not have sufficient internal controls to mitigate cut-off
errors in revenue.
o The Company did not have sufficient internal controls related to proper
oversight of work performed by the controller.
o The Company did not have sufficient internal controls over the period-end
financial reporting process.
o The Company did not have sufficient internal controls to deter or mitigate
management override.
o The Company did not have sufficient internal controls to correctly and
accurately record business combinations.
o The Company did not have sufficient internal controls over its variable
interest entity Excalibur International Marine Corporation as of December 31,
2009, the date used for the consolidation of Excalibur International Marine
Corporation's financial statements. The Company took control of Excalibur
International Marine Corporation subsequent to December 31, 2009.
In our opinion, because of the effect of the material weaknesses described above
on the achievement of the objectives of the control criteria, EFT Biotech
Holdings, Inc. has not maintained effective internal control over financial
reporting as of March 31, 2010, based on criteria established in Internal
Control - Integrated Framework issued by the Committee on Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
EFT Biotech Holdings, Inc. as of March 31, 2010 and 2009, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years ended March 31, 2010, 2009, and 2008 of EFT Biotech
Holdings, Inc. and our report dated June 21, 2010 expressed an unqualified
opinion thereon, which was not affected by the adverse opinion on internal
control over financial reporting.
/s/ Child, Van Wagoner & Bradshaw, PLLC
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
June 21, 2010
EFT BIOTECH HOLDINGS, INC.
Consolidated Balance Sheets
March 31, 2010 March 31, 2009
---------------- ----------------
ASSETS
Current assets
Cash and cash equivalents $ 38,383,833 $ 38,181,837
Inventories 2,971,713 3,908,629
Securities available for sale 791,388 508,746
Prepaid expenses 475,092 2,551,298
Short term note receivable, related party - 4,064,717
---------------- ----------------
Total current assets 42,622,026 49,215,227
Restricted cash 193,992 -
Other receivables 96,914 33,503
Property and equipment, net 15,370,975 360,156
Equity method investment - 17,129,314
Investments in bonds 4,763,165 -
Loan to related party 2,034,100 1,897,000
Security deposit 658,575 31,122
Goodwill 5,000 -
---------------- ----------------
Total assets $ 65,744,747 $ 68,666,322
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,346,835 $ 3,610,195
Other liabilities 7,101,106 6,675,552
Unearned revenues 2,673,680 1,991,215
Due to related parties 43,427 -
---------------- ----------------
Total current liabilities 12,165,048 12,276,962
Contingent liabilities 2,904,957 -
---------------- ----------------
Total liabilities 15,070,005 12,276,962
Stockholders' equity
EFT Biotech Holdings, Inc. stockholders'
equity:
Preferred stock, $.001 par value,
25,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.0001 par value,
4,975,000,000 authorized,
75,983,205 and 75,983,205 shares
issued and outstanding
at March 31, 2010 and 2009 760 760
Additional paid in capital 52,854,891 52,854,891
Retained earnings (deficit) (3,821,924) 4,023,992
Accumulated other comprehensive gain (loss) (469,326) (490,283)
---------------- ----------------
Total EFT Biotech Holdings, Inc.
stockholders' equity 48,564,401 56,389,360
Noncontrolling interest 2,110,341 -
---------------- ----------------
Total stockholders' equity 50,674,742 56,389,360
---------------- ----------------
Total liabilities and stockholders'
equity $ 65,744,747 $ 68,666,322
================ ================
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-1
EFT BIOTECH HOLDINGS, INC.
Consolidated Statements of Operations
Year Ended
----------------------------------------------
March 31, 2010 March 31, 2009 March 31, 2008
-------------- -------------- --------------
Sales revenues, net $ 16,776,314 $ 12,846,809 $ 30,249,302
Shipping charge 4,006,080 5,657,625 10,110,360
-------------- -------------- --------------
20,782,394 18,504,434 40,359,662
Cost of goods sold 4,869,900 5,780,447 11,423,852
Shipping cost 1,224,231 2,204,502 4,467,140
-------------- -------------- --------------
6,094,131 7,984,949 15,890,992
-------------- -------------- --------------
Gross profit 14,688,263 10,519,485 24,468,670
Selling, general and administrative
expenses 9,230,462 8,929,162 3,693,369
-------------- -------------- --------------
Net operating income 5,457,801 1,590,323 20,775,301
Other income (expense)
Interest income 546,471 1,246,433 275,538
Investment income 13,437 - -
Loss from equity method investment (5,744,421) (2,063,686) -
Equity method investment write-off (8,178,697) - -
Foreign exchange gain (loss) (133,437) 723,357 (4,248)
Other income/expense 88,780 634,635 54,904
-------------- -------------- --------------
Total other income (expense) (13,407,867) 540,739 326,194
-------------- -------------- --------------
Net income (loss) from continuing
operations before income taxes and
noncontrolling interest (7,950,066) 2,131,062 21,101,495
Income taxes expense (benefit) (4,505) 132,400 305,800
Net income (loss) before
extraordinary gain (7,954,571) 2,128,662 20,795,695
Extraordinary gain 100,531 - -
-------------- -------------- --------------
Net income (loss) $ (7,845,040) $ 2,128,662 $ 20,795,695
Noncontrolling interest (8,124) - -
-------------- -------------- --------------
Net income (loss) $ (7,845,916) $ 2,128,662 $ 20,795,695
============== ============== ==============
Net income per common share
Basic and diluted $ (0.10) $ 0.03 $ 0.37
============== ============== ==============
Weighted average common shares
outstanding
Basic and diluted 75,983,205 66,637,448 55,350,545
============== ============== ==============
The accompanying notes are an integral part of these audited consolidated
financial statements
F-2
EFT BIOTECH HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Additional Retained Other Total
Common Stock Paid-in Earnings Comprehensive Non-controlling Stockholders'
Shares Amount Capital (Deficits) Income (Loss) Interests Equity
------ ------ ---------- ---------- ------------- --------------- -------------
BALANCE, MARCH 31, 2007 52,099,000 $ 521 $ 4,479 $ (374,188) $ - $ - $ (369,188)
Issuance of preferred
stock and warrants - - - - - - -
Issuance of common stock
for services 1,201,000 12 2,150 - - - 2,162
Shares effectively issued
to former shareholders as
part of the recapitalization 7,722,414 77 (77) - - - -
Comprehensive income:
Net income - - - 20,795,695 - - 20,795,695
Dividend paid - - - (18,526,177) - - (18,526,177)
Unrealized loss on investments - - - - (163,064) - (163,064)
Total comprehensive income - - - - - - 2,106,454
------------ ---------- ------------ ------------- ------------- ----------- ------------
BALANCE, APRIL 1, 2008
- restated 61,022,414 $ 610 $ 6,552 $ 1,895,330 $ (163,064) $ - $ 1,739,428
Shares effectively issued
to former shareholders 66,667 1 (1) - - - -
Issuance of common stock
to employee 4,084 - 16,731 - - - 16,731
Issuance of common stock
to private placement
offering 14,890,040 149 43,919,414 - - - 43,919,563
Issuance of warrant to
private placement offering - - 8,912,195 - - - 8,912,195
Comprehensive income:
Net income - - - 2,128,662 - - 2,128,662
Unrealized gain/loss on
investments - - - - (327,219) - (327,219)
Total comprehensive income - - - - - - 1,801,443
------------ ---------- ------------ ------------- ------------- ----------- ------------
BALANCE, MARCH 31, 2009 75,983,205 $ 760 $52,854,891 $ 4,023,992 $ (490,283) $ - $56,389,360
Acquisition of subsidiaries
with noncontrolling interest - - - - - 2,150,673 2,150,673
Comprehensive income:
Net loss - - - (7,845,916) - (8,124) (7,854,040)
Unrealized gain on
investments - - - - 245,623 - 245,623
Foreign currency translation
adjustment - - - - (224,666) (32,208) (256,874)
Total comprehensive income - - - - - - (7,865,291)
------------ ---------- ------------ ------------- ------------- ----------- ------------
BALANCE, MARCH 31, 2010 75,983,205 $ 760 $52,854,891 $ (3,821,924) $ (469,326) $2,110,341 $50,674,742
============ ========== ============ ============= ============= =========== ============
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-3
EFT BIOTECH HOLDINGS, INC.
Consolidated Statements of Cash Flows
Year Ended
----------------------------------------------
March 31, 2010 March 31, 2009 March 31, 2008
-------------- -------------- --------------
Cash flows from operating
activities:
Net income (loss) $ (7,845,916) $ 2,128,662 $ 20,795,695
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 77,110 51,514 38,340
Loss on equity method investment 5,744,421 2,063,686 -
Warranty liability (9,079) (33,924) 36,912
Stock based compensation 11,467 16,731 2,162
Loss attributable to the
noncontrolling interests (8,124) - -
Equity method investment write-off 8,178,697 - -
Extraordinary gain from
acquisition of business (100,531) - -
Changes in operating assets and
liabilities:
Inventories 936,916 (1,289,200) (833,670)
Prepaid expenses and other receivable 1,478,331 (1,761,551) (411,560)
Accounts payable (2,520,479) 2,806,154 497,625
Other liabilities 406,742 (6,078,238) 12,372,996
Unearned revenues 682,465 (1,954,590) 1,434,470
Income tax payable - 305,000 (305,000)
-------------- -------------- --------------
Net cash provided by (used in)
operating activities 7,032,020 (4,355,756) 34,237,970
Cash flows from investing activities:
Cash acquired in acquisition
of Digital Development 96,561 - -
Cash acquired upon taking control
of Excalibur 728,298 - -
Additions to fixed assets (993,800) (305,068) (101,706)
Note receivables - related party (1,660,382) (5,961,717) -
Purchase of bonds (4,800,184) - -
Investments - (19,193,000) -
Purchase of available for
sale securities - - (999,029)
Stock issuing costs (3,992) - -
-------------- -------------- --------------
Net cash (used in) investing
activities (6,633,499) (25,459,785) (1,100,735)
Cash flows from financing activities:
Payment of dividends (18,526,177)
Restricted Cash (193,992) - (37,845,432)
Proceed from issuance of stock
and warrants - 52,831,758 37,845,432
Net cash provided by (used in)
financing activities (193,992)
52,831,758 (18,526,177)
Effect of exchange rate
changes on cash (2,533) - -
-------------- -------------- --------------
Net increase in cash 201,996 14,611,058 23,016,217
Cash, beginning of period 38,181,837 15,165,620 554,562
-------------- -------------- --------------
Cash, end of period $ 38,383,833 $ 38,181,837 $ 15,165,620
============== ============== ==============
Supplemental disclosures of cash
flow information:
Income taxes paid in cash $ 4,505 $ 2,400 $ 800
Non-cash investing and financing
activities:
Unrealized loss on securities
available for sale $ 245,623 $ 327,219 $ 163,064
Fixed assets sold with receivable $ - $ 33,504 $ -
Release of cash from restriction $ - $ 37,845,432 $ -
The accompanying notes are an integral part of these audited consolidated
financial statements.
F-4
EFT BIOTECH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION
EFT Biotech Holdings, Inc. ("EFT Holdings" or "the Company"), formerly HumWare
Media Corporation, GRG, Inc., Ghiglieri Corporation, Karat Productions, Inc.,
was incorporated in the State of Nevada on March 19, 1992.
On November 18, 2007, the Company issued 53,300,000 shares of its common stock
in connection with a share exchange with the stockholders of EFT BioTech, Inc.
("EFT BioTech"), a Nevada Corporation formed on September 18, 2007 (the
"Transaction"), pursuant to which EFT BioTech became a wholly-owned subsidiary
of the Company. The 53,300,000 common shares issued included 52,099,000 shares
issued to pre-capitalization shareholders and 1,201,000 to four directors and
officers of EFT BioTech, and represented approximately 87.34% of the Company's
common stock outstanding after the Transaction. Consequently, the stockholders
of EFT BioTech, Inc. owned a majority of the Company's common stock immediately
following the Transaction. As EFT Holdings was a non-operating public shell
corporation that acquired an operating company, this Transaction was treated as
a capital transaction where the acquiring corporation issued stock for the net
monetary assets of the shell corporation, accompanied by a recapitalization. The
accounting is similar in form to a reverse acquisition, whereby EFT BioTech is
deemed to be the accounting acquirer, except that goodwill or other intangibles
are not recorded. All references to EFT BioTech common stock have been restated
to reflect the equivalent numbers of EFT Holdings common shares.
At its formation on September 18, 2007, EFT BioTech acquired EFT Limited, a
British Virgin Islands company ("BVI") formed on August 22, 2007, pursuant to
which EFT Limited (BVI) became a wholly-owned subsidiary of EFT BioTech. On
October 20, 2008, EFT Investment Co., Ltd. ("EFT Investment"), a Taiwan company,
was formed as a wholly-owned subsidiary of EFT Biotech Holdings, Inc. Since both
EFT BioTech , EFT Limited (BVI) and EFT Investment Co., Ltd. were under common
control, this acquisition represents a reorganization of entities under common
control.
EFT Limited (BVI) has four wholly-owned subsidiaries: EFT, Inc., a California
company formed on January 1, 2003, Top Capital International, Ltd. (BVI), a BVI
company formed on May 22, 2002, EFT (HK), Ltd., a Hong Kong ("HK") company
formed on November 1, 2006 and EFT International Ltd. (BVI), a BVI company
formed on April 20, 2005, which it acquired all on November 14, 2007. As EFT
Limited (BVI) and the four companies being acquired were under common control,
this acquisition also represents a reorganization of entities under common
control.
These reorganizations of entities under common control resulted in changes in
the legal organization of these predecessors to EFT BioTech but did not result
in changes in the reporting entity.
F-5
On October 20, 2008, EFT Investment Co., Ltd. ("EFT Investment"), a Taiwan
company, was formed as a wholly-owned subsidiary of EFT Biotech Holdings, Inc.
On October 25, 2008, EFT Investment Co. Ltd ("EFT Investment") acquired 48.81%
of Excalibur International Marine Corporation ("Excalibur")'s capital stock. Due
to the substantial financial support EFT Investment has provided Excalibur to
fund its operations and other factors, EFT Investment is deemed to have
controlling interest in Excalibur at January 15, 2010 as defined by Accounting
Standards Codification ("ASC") Topic 810, Consolidation, which requires EFT
Investment to consolidate the financial statements of Excalibur as its variable
interest entity ("VIE"). Prior to that date, Excalibur was accounted for as an
equity method investment. Since Excalibur has a year end of December 31, it's
December 31, 2009 financial information is consolidated with the Company's March
31, 2010 financial statements.
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. in exchange for 79,265,000 shares of Digital's common stock. The
shares acquired represent approximately 92% of Digital's outstanding common
stock.
The EFT-Phone consists of a cell phone which uses the Microsoft Operating
System. The EFT-Phone has an application that will allow the Company's
Affiliates to access all of their back office sites, including their commission
accounts, through which the Affiliates will be able to deposit, withdraw and
transfer money to another account or to another Affiliate at no cost. The
EFT-Phone will have educational applications and PowerPoint presentation
capabilities.
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.
Servicing includes the collection of service fees for all EFT-Phones worldwide,
including monthly fees, usage fees, as well as call forwarding, call waiting,
text messaging and video fees. Digital also acquired the rights to distribute
all EFT-Phone accessories.
The EFT-Phone will be manufactured by an unrelated third party.
Distribution of the EFT-Phones is expected to begin in July, 2010. The Company,
through its subsidiaries, is mainly engaged in the E-Business designed around
the concept of Business-to-customer using the World Wide Web as its "storefront"
and business platform to market, sell and distribute 50 American brand products
consisting of 26 nutritional products, 21 personal care products, 1 automotive
fuel additives, 1 home product and a portable drinking container. In addition,
the Company, through Excalibur, owns and operates a ship which transports
passengers and cargo between Taiwan and mainland China through the Taiwan
Strait.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America.
F-6
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and VIE for which a subsidiary of the Company is the
primary beneficiary. All inter-company accounts and transactions have been
eliminated in consolidation.
Foreign Currency
- ----------------
The Company's reporting currency is the U.S. dollar. The Company's operations in
Hong Kong and Taiwan use their local currencies as their functional currency.
The financial statements of the subsidiaries are translated into U.S. Dollars
(USD) in accordance with ASC Topic 830, Foreign Currency Translation. According
to the Statement, all assets and liabilities were translated at the year end
current exchange rate, stockholders equity items are translated at the
historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with ASC Topic 220, Reporting
Comprehensive Income as a Component of Stockholders Equity. Foreign exchange
transaction gains and losses are reflected in the income statement.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Contingencies
- -------------
Certain conditions may exist as of the date the financial statements are issued,
which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company's management and
legal counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's financial statements.
If the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not
disclosed unless they involve guarantees, in which case the guarantee would be
disclosed.
F-7
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less. The Company maintains its accounts in banks,
several of which exceed the federally insured limit. In aggregate, approximately
$36.9 million in deposits were exceeded the federally insured limit.
Securities available for sale
- -----------------------------
The Company's investments in publicly traded equity securities are classified as
available-for-sale and are reported at fair value (based on quoted prices and
market prices) using the specific identification method. Unrealized gains and
losses, net of taxes, are reported as a component of stockholders' equity.
Realized gains and losses on investments are included in investment and other
income, net when realized. Any impairment loss to reduce an investment's
carrying amount to its fair market value is recognized in income when a decline
in the fair market value of an individual security below its cost or carrying
value is determined to be other than temporary.
Inventories
- -----------
Inventories are valued at the lower of cost (determined on a first-in, first-out
basis) or market. Inventory consists of high tech nutritional, cosmetic,
automotive maintenance and environmentally safe products. The Company has two
warehouses, one in City of Industry, CA and the other in Kowloon, HK. On a
quarterly basis, the management reviews inventory levels in each country for
estimated obsolescence or unmarketable items, as compared to future demand
requirements and the shelf life of the various products. Based on this review,
the Company records inventory write-downs when costs exceed expected net
realizable value. Historically, our estimates of the obsolete or unmarketable
items have been insignificant.
Property and equipment
- -----------------------
Property and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to earnings as incurred;
additions, renewals and betterments are capitalized. When property and equipment
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in operations. Depreciation of property and equipment is provided using
the straight-line method for substantially all assets with estimated lives of:
F-8
Machinery & equipment 3-8 years
Computers & office equipment 3-5 years
Automobile 5 years
Leasehold improvements 5 years
Transportation equipment 10 years
For the years ended March 31, 2010 and 2009, depreciation expenses were $77,110
and $51,514, respectively.
Long-Lived Assets
- -----------------
Effective January 1, 2002, the Company adopted ASC Topic 360, Accounting for the
Impairment or Disposal of Long-Lived Assets, ASC Topic 360 which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting provisions of ASC
Topic 225, Reporting the Results of Operations for a Disposal of a Segment of a
Business. The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with ASC Topic 360. ASC Topic 360
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the asset's
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair market value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Fair Value of Financial Instruments
- -----------------------------------
ASC Topic 825 requires that the Company discloses estimated fair values of
financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the
short-term maturity of these instruments.
Fair Value Measurements
- -----------------------
Effective April 1, 2008, the Company adopted ASC Topic 820 which defines fair
value, establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. ASC Topic 820 does not require any new fair
value measurements, but rather eliminates inconsistencies in guidance found in
various other accounting pronouncements. The adoption of ASC Topic 820 did not
have a material effect on the Company's financial condition or operating
results.
Refer to Note 4, "Fair Value Measurements" for additional information on the
adoption of ASC Topic 820.
F-9
Stock-Based Compensation
- ------------------------
ASC Topic 718 requires companies to recognize in the statement of operations the
grant date fair value of stock options and other equity-based compensation
issued to employees. The Company adopted ASC Topic 718 on April 1, 2006.
Stocks issued to officers or employees
- --------------------------------------
During the years 2010 and 2009, the Company has not issued any stock options or
warrants to employees nor are there any outstanding warrants or options as of
March 31, 2010, therefore pro forma disclosures are not required.
Stock issued for service
- ------------------------
The Company accounts for equity instruments issued in exchange for the receipts
of goods or service from other than employees in accordance with Accounting
Standards Codification or "ASC" Topic 718 and the conclusions reached by ASC
Topic 505. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of performance commitment or completion of performance by the provider
of goods or service as defined by ASC Topic 505.
During November 2008, the Company issued 4,084 shares of common stock in
exchange of service we received. For the years ended March 31, 2010 and 2009,
the stock-based compensation for shares issued to non-employees was $0 and
$16,731, respectively.
Revenue Recognition
- -------------------
The Company's revenue recognition policy is in accordance with the requirements
of Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, ("SAB 104"),
ASC Topic 605, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) ASC Topic 605 and other
applicable revenue recognition guidance and interpretations. Sales revenue is
recognized at the date of shipment to customers when a formal arrangement
exists, the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectibility is reasonably
assured. Transportation income is generated from 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. Cash
consideration given by the Company to its sales affiliates is considered to be a
reduction of the selling prices of the Company's products, thus, is recorded as
a reduction of revenue.
The Company has developed its own reverse auction program, for the purpose of
increasing revenues by attracting new members to join EFT's affiliate program.
In a reverse auction the objective is to bid the price of a product down within
a predetermined time frame unlike an ordinary auction (also known as a forward
auction) where bidders bid the price up and the highest bidder wins the right to
buy the product at the conclusion of bidding. The reverse auction program was
beta-tested and introduced to the Company's Affiliates in June 2009. All bidders
acknowledge that they have read and understand the Terms and Conditions with the
Company before they can participate in the reverse auction program. Every bid
has a fixed price of $1 and the Company only recognizes revenue when bidder has
F-10
placed a bid on an auction product. The bidders must purchase bids in advance
before entering the reverse auction program and these purchased bids are
non-refundable according to the Terms and Conditions of the reverse auction
program. The reverse auction program generated $1,233,005 sales revenue as of
March 31, 2010.
Warranty
- --------
The Company generally does not provide customers with right of return except for
defective products which is within six month warranty period from date of sales.
Historically, the company warranty provisions have not been material. The
specific warranty terms and conditions vary depending upon the product sold, but
generally include replacement over a period of nine months. Factors that affect
the Company's warranty liability include the number of products currently under
warranty, historical and anticipated rates of warranty claims on those products,
and cost per claim to satisfy the warranty obligation. The anticipated rate of
warranty claims is the primary factor impacting the estimated warranty
obligation. Warranty claims are relatively predictable based on our historical
experience. Warranty reserves are included in other liabilities and the
provision for warranty accruals is included in cost of goods sold in the
consolidated statement of Operations and Other Comprehensive Income. Management
reviews the adequacy of warranty reserves each reporting period based on
historical experience and management's estimate of the costs to remediate the
claims and adjusts the provisions accordingly.
Currently, the Company estimates its warranty expense as follows:
Products sold for
-----------------------------------------
0-2 months 2% of cost
3-4 months 1.5% of cost
5-6 months 1% of cost
The Company records warranty liabilities at the time of sale for the estimated
costs that may be incurred under its limited warranty. The specific warranty
terms and conditions vary depending upon the product sold, but generally include
replacement over a period of nine months. Factors that affect the Company's
warranty liability include the number of products currently under warranty,
historical and anticipated rates of warranty claims on those products, and cost
per claim to satisfy the warranty obligation. The anticipated rate of warranty
claims is the primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the warranty period is
only six months and replacement is generally already in stock or available at a
pre-determined price. Warranty claims are relatively predictable based on
historical experience of failure rates. If actual results differ from the
estimates, the Company revises its estimated warranty liability.
Shipping Costs
- --------------
The Company's shipping costs are included in cost of sales in the accompanying
Consolidated Statements of Operations and Other Comprehensive Income for all
periods presented.
F-11
Advertising
- -----------
Advertising expenses consist primarily of costs of promotion for corporate image
and product marketing and costs of direct advertising. The Company expenses all
advertising costs as incurred. For the years ended March 31, 2010 and 2009,
advertising expenses were $61,782 and $89,283, respectively.
Consultant Fee
- --------------
On January 1, 2009, EFT International Ltd, a wholly-owned subsidiary of EFT
BioTech Holdings, Inc., entered into a contract with ZR Public Relation
Consultant Ltd. (the Consultant), which provides public relation consulting
services in Asia. In consideration of the services rendered by the Consultant,
EFT International Ltd agrees to pay 5% of total commission payout for each
fiscal year. For the years ended March 31, 2010 and 2009, consultant expense for
EFT International Ltd was $ 1,279,307 and $1,771,944, respectively.
Income Taxes
- ------------
The Company utilizes ASC Topic 740, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company adopted the provisions of ASC Topic 740, which addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under ASC Topic 740, we
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. ASC Topic 740 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures.
Earnings Per Share
- ------------------
Basic net income per share is computed on the basis of the weighted average
number of common shares outstanding during the period.
Diluted net income per share is computed on the basis of the weighted average
number of common shares and common share equivalents outstanding. Dilutive
securities having an anti-dilutive effect on diluted net income per share are
excluded from the calculation.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
F-12
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
The following table shows the weighted-average number of potentially dilutive
shares excluded from the diluted net income per share calculation for the years
ended March 31, 2010 and 2009:
F-13
Year Ended March 31,
2010 2009
---- -----
Weighted average warrants outstanding 14,890,040 14,890,040
---------- ----------
Total 14,890,040 14,890,040
========== ==========
Year Ended March 31,
2010 2009
---- -----
Historical Numerator:
Net Income (loss) $ (7,845,916) $ 2,128,662
================ =============
Denominator:
Weighted-average shares used
for basic net income per share 75,983,205 66,637,448
================ ==============
Basic net income (loss) per shar $ (0.10) $ 0.03
================ ==============
Comprehensive income
- --------------------
Comprehensive income is defined as the change in equity of a company during a
period from transactions and other events and circumstances excluding
transactions resulting from investments from owners and distributions to owners.
For the Company, comprehensive income for the periods presented is comprised of
net income, unrealized loss on marketable securities classified as
available-for-sale, and foreign currency translation adjustments.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk are cash, accounts receivable and other receivables arising from its
normal business activities. The Company places its cash in what it believes to
be credit-worthy financial institutions, but several of its bank accounts exceed
the federally insured limit. The Company's accounts receivable is constantly at
a marginal to zero dollar ($0) level and its revenues are derived from orders
place by consumers located anywhere in the world over the Company's designated
internet portal. The Company maintains a zero dollar ($0) allowance for doubtful
accounts and authorizes credits based upon its historical "sound and quality"
after sales customer services provided to affiliates and customers.
Historically, such customer services have been maintained in accordance with the
management expectations. The Company routinely assesses the credits authorized
to its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
Segment Reporting
- -----------------
ASC Topic 280, "Disclosure about Segments of an Enterprise and Related
Information" requires use of the management approach model for segment
reporting. The management approach model is based on the way a company's
management organizes segments within the company for making operating decisions
F-14
and assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company. Since management does not
disaggregate Company data, the Company has determined that only one segment
exists. Accordingly, no segment reporting is provided.
Recent accounting pronouncements
- --------------------------------
In April 2010, the FASB issued the amendment to ASC Topic 718, "Compensation -
Stock Compensation", which provides clarification that an employee share-based
payment award with an exercise price denominated in the currency of a market in
which a substantial portion of the entity's equity securities trade should not
be considered to contain a condition that is not a market, performance, or
service condition. As a result, an entity would not classify such an award as a
liability if it otherwise qualifies as equity. This topic will be effective for
periods beginning on or after December 15, 2010. The Company has not elected to
early adopt this topic and is evaluating the impact that this topic will have on
the Company's financial statements.
In April 2010, the FASB issued the amendment to ASC Topic 310, "Receivables".
Amended ASC Topic 310 addresses that modification of loans if within a pool
under the existing ASC do not result in the removal of those loans from the pool
even the modification of those loans would otherwise be considered a troubled
debt restructuring. Effective for modifications of loans accounted for within
pools under Subtopic 310-30 occurring in the first interim or annual period
ending on or after July 15, 2010 with early adoption permitted. This topic is to
be applied prospectively. The Company has not elected to early adopt this topic
and is evaluating the impact that this topic will have on the Company's
financial statements.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity
(Topic 505): Accounting for Distributions to Shareholders with Components of
Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for purposes
of applying Topics 505 and 260. Effective for interim and annual periods ending
on or after December 15, 2009, and would be applied on a retrospective basis.
The Company does not expect the provisions of ASU 2010-01 to have a material
effect on the financial position, results of operations or cash flows of the
Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement 167.
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166.
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
F-15
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1.
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. The Company does not expect
the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of allocation.
Effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The Company does not expect the provisions of ASU 2009-13 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair
Value Measurements and Disclosures (Topic 820): Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent). This update
provides amendments to Topic 820 for the fair value measurement of investments
in certain entities that calculate net asset value per share (or its
equivalent). It is effective for interim and annual periods ending after
December 15, 2009. Early application is permitted in financial statements for
earlier interim and annual periods that have not been issued. The Company does
not expect the provisions of ASU 2009-12 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues
Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share
Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF
09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and
disclosure of share-lending arrangements that are classified as equity in the
financial statements of the share lender. An example of a share-lending
arrangement is an agreement between the Company (share lender) and an investment
bank (share borrower) which allows the investment bank to use the loaned shares
to enter into equity derivative contracts with investors. EITF 09-1 is effective
for fiscal years that beginning on or after December 15, 2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15, 2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15, 2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
F-16
Note 3 - FINANCIAL INSTRUMENTS
The following table summarizes unrealized gains and losses related to the
Company's investments in marketable securities designated as available-for-sale.
The fair value of securities available for sale has been estimated based on
quoted market prices, which the Company currently believes are indicative of
fair value. The Company's securities available for sale are mainly equity
securities mutual funds.
March 31, 2010 March 31, 2009
--------------------------- --------------------------------
Fair Cost Unrealized Fair Cost Unrealized
Value (Loss) Value (Loss)
------- ------ ---------- -------- -------- ----------
Securities
available for
sale $791,388 $999,029 $(207,641) $508,746 $999,029 $(490,283)
-------- -------- ---------- -------- -------- ----------
Total $791,388 $999,029 $(207,641) $508,746 $999,029 $(490,283)
======== ======== ========== ======== ======== ==========
Note 4 - FAIR VALUE MEASUREMENTS
On April 1, 2008, the Company adopted the effective portions of ASC Topic 820.
In February 2008 the FASB issued ASC Topic 820, which provides a one year
deferral of the effective date of ASC Topic 820 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
Therefore, the Company adopted the provisions of ASC Topic 820 with respect to
only financial assets and liabilities.
ASC Topic 820 defines fair value, establishes a framework for measuring fair
value and enhances disclosure requirements for fair value measurements. This
statement does not require any new fair value measurements. ASC Topic 820
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or a liability. As a basis for considering such assumptions,
ASC Topic 820 establishes a three-tier value hierarchy, which prioritizes the
inputs used in the valuation methodologies in measuring fair value:
Level 1-- Observable inputs that reflect quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2-- Include other inputs that are directly or indirectly observable in the
marketplace.
Level 3-- Unobservable inputs which are supported by little or no market
activity.
The fair value hierarchy also requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. In accordance with 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.
F-17
Assets and liabilities measured at fair value are summarized below.
March 31, 2010
-----------------------------------------------------
Level 1
Quoted
Prices Level 2
in Active Significant Level 3
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs Total
------------ ------------ ------------ ----------
Securities available
for sale $ 791,388 $ - $ - $ 791,388
------------ ------------ ------------ ----------
Total assets measured
at fair value $ 791,388 $ - $ - $ 791,388
------------ ------------ ------------ ----------
Note 5 - NOTE RECEIVABLE, RELATED PARTIES
Short-Term
During years ended March 31, 2010 and 2009, the Company lent funds to Excalibur
on a short-term basis to finance its operations. The short-term loans are due
within six months to nine months and are extendable at the end of term. Interest
rates on the short-term loans ranged from 8% to 12.5% per annum and from 3.00%
to 3.75% per month at March 31, 2010 and 2009, respectively. Upon consolidation
of Excalibur (see Note 8), the inter-company short-term loans were eliminated in
consolidation. For year ended March 31, 2009, the equity method was used for the
investment in Excalibur and the balance of short-term loans at March 31, 2009
was $4,064,717.
Long-Term
The Board of Directors of the Company approved two non-interest bearing
unsecured demand loans in the amount of U.S. $330,000 and $1,567,000
respectively on July 11, 2009 and July 25, 2009 to Yeuh-Chi Liu, a vendor, a
member of the board of directors and a shareholder of Excalibur. The $1,567,000
loan is collateralized with 3.97% ownership of Excalibur. As of March 31, 2010,
the $330,000 loan has been repaid.
On Feburary 7, 2010, one of the Company's wholly-owned subsidiaries, EFT
International Ltd. (BVI) ("EFT Int'l") loaned $467,100 to Turn-Key Technology
Co., Ltd. The loan is due on demand and bears an interest rate of 2.5% per
annum.
Note 6 - RESTRICTED CASH
On August 20, 2009, Taiwan Taibei district court froze Excalibur's cash of
$193,992 as a result of a lawsuit filed by Marinteknik Shipbuilder(s) PTE LTD (a
Singapore company) against Excalibur in the Taiwan Taichung District Court. The
lawsuit claims Excalibur owes service fees and out-of-pocket expenses of
$249,731.
F-18
Note 7 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31, March 31,
2010 2009
--------- ------------
Construction in Progress $ 804,410 $ -
Transportation equipment 17,065,379 -
Lease Improvement 418,582 262,679
Automobile 154,724 154,724
Computer Equipment 144,696 26,373
Furniture & Fixture 68,461 12,278
Machinery and Equipment 49,903 6,405
18,706,155 462,459
Less: Accumulated depreciation (3,335,180) (102,303)
------------- ------------
$ 15,370,975 $ 360,156
============ =============
At March 31, 2010, expenditures of $804,410 had been incurred for construction
of a new water filter plant for bottled water in Baiquan, China. The Company
will begin depreciating the water filter plant when it is placed in service.
Note 8 - INVESTMENT
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. As of
March 31, 2009, the balance of the Company's investment in Excalibur was
$17,129,314.
Due to the substantial financial support the Company subsequently provided
Excalibur in funding its operations and as a result of a change in Excalibur's
Board of Directors, the Company was deemed to have controlling interest in
Excalibur and Excalibur became as a Variable Interest Entity of the Company on
January 15, 2010.
.. In accordance with ASC Topic 810-10-15-14, the Company measured and recognized
its interest in Excalibur on December 31, 2009, the closest fair value
acquisition date..
The equity method was used for this investment for the nine months ended
December 31, 2009 and for the year ended March 31, 2009. At March 31, 2010,
Excalibur's December 31, 2009 financial statements were consolidated with the
Company's March 31, 2010 financial statements and all inter-company accounts and
transactions were eliminated in consolidation.
The following table summarizes the allocation of the Company's net investment in
Excalibur on January 15, 2010:
Property and equipment $ 6,878,845
Net liabilities assumed (4,942,599)
----------------
$ 1,936,246
================
F-19
Note 9 - INVESTMENTS IN BONDS
In September 2009, the Company invested $4,800,000 in bonds including those
issued by Goldman Sachs Group, Wal Mart, Wells Fargo, Citigroup, Philip Moris,
Home Depot, Coventry Health Care, and HSBC finance Corp. The carrying value for
Bonds is $4,763,165 as of March 31, 2010.
Note 10 - ACQUISITION
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. 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. This transaction was accounted for as a business combination.
The following table summarizes the allocation of the purchase price for Digital
Development:
Extraordinary gain $ (100,531)
Goodwill acquired 4,610
Net assets acquired 95,921
--------------
$ -
==============
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. This
transaction was accounted for as a business combination.
Note 11 - OTHER LIABILITIES
Other liabilities consist of the following:
March 31, 2010 March 31, 2009
-------------- --------------
Commission payable $ 6,380,408 $ 5,977,969
Payroll liabilities 645,900 645,900
Warranty liability 43,346 51,683
Other 31,452 -
------------- -------------
$ 7,101,106 $ 6,675,552
============= =============
Note 12 - CONTINGENT LIABILITIES
The Company's subsidiary, Excalibur, purchased the vessel "OceanLaLa" from a BVI
company "Ezone Capital Co. Ltd." in 2008. The purchase price was NTD 708,000,000
($21,961,660). The vessel has been delivered to Excalibur and registered as
owned by Excalibur at the end of 2008. The last payment of NTD 92,600,000
($2,872,387) is still under dispute as Excalibur believes that certain equipment
relating to the OceanLaLa was not delivered at the time of sale.
F-20
Gu Zong-Nan (former vice general manager of Excalibur) filed a lawsuit against
Excalibur in the Taiwan Shihlin District Court claiming unpaid salary. The court
found that there was a valid agreement between the parties that provided the
salary owed by Excalibur did not need to be paid until Excalibur made a profit
from its business operations. Although Excalibur has not been profitable since
its inception, a contingent liability of NTD 1,050,000 ($32,570) was recorded.
Note 13 - STOCKHOLDERS' EQUITY
Common stock
- ------------
As of March 31, 2010 the Company had 4,975,000,000 shares of common stock
authorized and 75,983,205 shares issued and outstanding.
The Company did not issue any shares of common stock during the year ended March
31, 2010.
Warrants
- --------
Between January and August 2008 the Company sold 14,890,040 Units to non-U.S.
residents at a price of $3.80 per Unit. Each Unit consisted of one share of the
Company's common stock and one warrant. Each warrant is exercisable to purchase
one share of common stock for a price of $3.80 until the second anniversary of
the date of issuance.
The Company has the right, not the obligation to redeem the outstanding
warrants, on a pro rata basis, at a purchase price of $0.00001 per warrant
within thirty (30) days from the tenth (10th) consecutive trading day that the
closing sales price, or the average of the closing bid and asked price of the
Company's common stock trades on the OTC or any public securities market within
the U.S., at least $11.00 per share.
As the only settlement option for the warrants is physical settlement, in which
the party designated in the contract as the buyer delivers the full stated
amount of cash to the seller, and the seller delivers the full stated number of
shares to the buyer, the Company accounted for the warrants as permanent equity
and recorded it in additional paid in capital.
Note 14 - INCOME TAXES
The Company was incorporated in the United States of America ("US") and has
operations in four tax jurisdictions - the United States of America, the Hong
Kong Special Administrative Region ("HK SAR"), the Taiwan, and the BVI.
The Company generated substantially all of its net income from its BVI
operations for the year ended March 31, 2010 and 2009. According to BVI tax law
this income is not subject to any taxes . The Company's HK SAR subsidiaries had
no taxable income in the respective periods. The deferred tax assets for the
Company's US operations and HK SAR subsidiaries were immaterial at March 31,
2010 and 2009.
F-21
The Company's Taiwan VIE, Excalibur, is subject to a 17% standard enterprise
income tax based on its taxable net profit. Excalibur has incurred net
accumulated operating losses for income tax purposes and believes that it is
more likely than not that these net accumulated operating losses will not be
utilized in the future. Therefore, it has provided full valuation allowance for
the deferred tax assets arising from the losses as of March 31, 2010 and 2009.
The income tax expenses consist of the following:
Year Ended March 31,
-----------------------------
2010 2009
------------- -------------
Current:
Domestic $ 2,506 $ 2,400
Foreign 1,999 -
Deferred - -
------------- ------------
Income tax expenses $ 4,505 $ 2,400
============= ============
A reconciliation of income taxes, with the amount computed by applying the
statutory federal income tax rate (37% for the years ended March 31, 2010 and
2009) to income before income taxes for the years ended March 31, 2010 and 2009,
is as follows:
Year Ended March 31,
-----------------------------
2010 2009
------------- -------------
Income tax at U.S. statutory rate $ (3,084,637) $ 788,493
State tax 2,506 2,400
Indefinitely invested earnings of
foreign subsidiaries 3,055,036 (819,633)
Nondeductible expenses 31,600 31,140
4,505 2,400
Effective tax rate 0% 0%
Uncertain Tax Positions
- -----------------------
As a result of the implementation of ASC Topic 740, the Company recognized no
material adjustments to liabilities or stockholders' equity. Interest associated
with unrecognized tax benefits are classified as income tax and penalties are
classified in selling, general and administrative expenses in the statements of
operations. The adoption of ASC Topic 740 did not have a material impact on the
Company's financial statements.
For the years ended March 31, 2010 and 2009, the Company had no unrecognized tax
benefits and related interest and penalties expenses. Currently, the Company is
not subject to examination by major tax jurisdictions.
Note 15 - WARRANTY LIABILITY
The Company records warranty liabilities at the time of sale for the estimated
costs that may be incurred under its limited warranty. Changes in warranty
liability for standard warranties which are included in current liabilities on
the Company's Consolidated Balance Sheets are presented in the following tables:
March 31, 2010 March 31, 2009
-------------- --------------
Warranty liability at March 31 $ 51,684 $ 85,608
Costs accrued (8,338) (33,925)
Service obligations honored - -
-------------- --------------
Warranty liability at December 31 $ 43,346 $ 51,683
============== ==============
Current portion $ 43,346 $ 51,683
Non-current portion - -
-------------- --------------
Warranty liability at end of period $ 43,346 $ 51,683
============== ==============
F-22
Note 16 - RELATED PARTY TRANSACTIONS
March 31, March 31,
2010 2009
-------------- -------------
Amount due to related parties: $ 43,427 $ -
Names and relationship of related parties:
Names Relationship with Company
- ------ -------------------------
Lu TsoChun Shareholder of Excalibur
Steve Hsiao Shareholder of Excalibur
Gu Zong-Nan Shareholder of Excalibur
Note 17 - COMMITMENTS
Executive Offices
- -----------------
The Company leases 3,367 square feet of space in California for its
executive offices. The lease expires in February 2013. The base rent is: $9,090
for year one, $9,454 for year two and $9,832 for year three.
Operating Lease
- ---------------
The Company rents office space for its satellite training center in Hong Kong.
The lease provides for free lease in the first two years and a monthly lease
payments approximating $50,000 USD starting the beginning of the third year and
expires on June 30, 2012. Expensing the 5-year total rent evenly over the life
of the lease, the future minimum lease payments under the operating lease are as
follows:
Year Ending March 31,
- ---------------------
2011 $ 360,000
2012 360,000
The Company rents storage space for its satellite training center in Hong Kong.
The lease provides for monthly lease payments approximating $1,135 USD starting
on May 8, 2008 and expiring on May 8, 2010. Future minimum lease payments under
the month to month operating leases as of March 31, 2010 approximate the
following:
F-23
Year Ending March 31,
- ---------------------
2011 $ 1,135
The Company rents office space for its satellite training center in Korea. The
lease provides for monthly lease payments approximating $9,330 USD starting on
June 25, 2009 and expiring on June 24, 2011. Future minimum lease payments under
the operating leases as of March 31, 2010 approximate the following:
Year Ending March 31,
- ---------------------
2011 $ 111,960
2012 27,990
The Company rents storage space for its satellite training center in Korea. The
lease provides for monthly lease payments approximating $1,134 USD starting on
June 25, 2009 and expiring on June 24, 2011. Future minimum lease payments under
the operating leases as of March 31, 2010 approximate the following:
Year Ending March 31,
- ---------------------
2011 $ 13,608
2012 3,402
The Company rents office space for its satellite training center in Vietnam. The
lease provides for monthly lease payments approximating $2,420 USD starting on
May 9, 2009 and expiring on May 9, 2011. Future minimum lease payments under the
operating leases as of March 31, 2010 approximate the following:
Year Ending March 31,
- ---------------------
2011 $ 29,040
2012 2,420
The Company rents office space for its satellite training center in Vietnam
SaiKong. The lease provides for monthly lease payments approximating $1,400 USD
starting on August 8, 2009 and expiring on August 8, 2011. Future minimum lease
payments under the operating leases as of March 31, 2010 approximate the
following:
Year Ending March 31,
- ---------------------
2011 $ 16,800
2012 5,600
The Company rents office space for its satellite training center in Thailand.
The lease provides for monthly lease payments approximating $1,860 USD starting
on April 20, 2009 and expiring on March 29, 2011. Future minimum lease payments
under the operating leases as of March 31, 2010 approximate the following:
F-24
Year Ending March 31,
- ---------------------
2011 $ 22,320
The Company rents office space for its satellite training center in Thailand.
The lease provides for monthly lease payments approximating $564 USD starting on
April 1, 2009 and expiring on March 29, 2011. Future minimum lease payments
under the operating leases as of March 31, 2010 approximate the following:
Year Ending March 31,
- ---------------------
2011 $ 6,768
The Company rents office space for its auction product purchase center in China.
The lease provides for monthly lease payments approximating $732 USD starting on
June 1, 2009 and expiring on May 30, 2010. Future minimum lease payments under
the operating leases as of March 31, 2010 approximate the following:
Year Ending March 31,
- ---------------------
2011 $ 1,464
The Company rents another office space for its auction product purchase center
in China. The lease provides for monthly lease payments approximating $264 USD
starting on July 15, 2009 and expiring on July 14, 2010. Future minimum lease
payments under the operating leases as of March 31, 2010 approximate the
following:
Year Ending March 31,
- ---------------------
2011 $ 924
Rent expenses for the year ended March 31, 2010 and 2009 were approximately
$653,402 and $494,487, respectively.
Note 18 - LITIGATION
Excalibur filed a lawsuit against Jiao Ren-Ho (former chairman of Excalibur) in
the Taiwan Shihlin District Prosecutors office in February 2010. Excalibur
alleges, among other things, that Jiao Ren-Ho committed the offences of capital
forging, fraud, breach of trust, and document fabrication.
Excalibur filed a lawsuit against Chang Hui-Ying, Excalibur's former accountant
in the Taiwan Shihlin District Prosecutors office in March 2010. The claims of
Excalibur against Chang Hui-Ying are based upon the audit of Excalibur's
financial statements by Chang Hui-Ying. Excalibur alleges, among other things,
that Chang Hui-Ying committed the offences of capital forging, fraud, breach of
trust, and document fabrication.
F-25
Excalibur filed a lawsuit against Hsiao Zhong-Xing (former general manager of
Excalibur) and Lu Zhuo-Jun (former general manager of Excalibur) (collectively
"Defendants") in the Taiwan Shihlin District Prosecutors office. Excalibur
alleges, among other things, that Defendants committed the offences of capital
forging, fraud, breach of trust, and document fabrication.
Gu Zong-Nan (former vice general manager of Excalibur) filed a lawsuit against
Excalibur in the Taiwan Shihlin District Court claiming unpaid salary (NTD
1,050,000) and severance payments (260,038 NTD). In April 2010, the Taiwan
Shihlin District Court denied the claims as the court found that (i) there was a
valid agreement between the parties that provided the salary owed by Excalibur
would not be paid until Excalibur makes profit from its operations and (ii) Gu
Zong-Nan held a managerial position in Excalibur and as a result is not entitled
to any severance payment according to the Labor Standard Law of Taiwan.
Excalibur has suffered net losses since inception, however, a contingent
liability for the unpaid salary remains.
Marinteknik Shipbuilder(s) PTE LTD. (a country-regionplaceSingapore company)
filed a lawsuit against Excalibur in the Taiwan Taichung District Court for
unpaid service fees and out-of-pocket expenses of NTD8,050,832. On August 20,
2009, the Taiwan Taibei district court froze Excalibur's cash of $193,992 in
response to the suit. The final resolution of this case is pending.
Jiao Ren-Ho (former chairman of Excalibur) filed a lawsuit against Excalibur in
the Taiwan Shihlin District Court claiming Excalibur's special meeting of
shareholders held on January 12, 2010, and the actions taken at the meeting,
including the removal of Mr. Jiao as an officer and the chairman of Excalibur,
were unlawful. Monetary damages were not claimed in the suit. The resolution of
this case is pending.
Note 19 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events for potential recognition and
disclosure through the date the financial statements were issued. The Company
has not discovered any material subsequent events that it would consider
necessary for disclosure.
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report, an evaluation
was carried out by our Registrant's management, with the participation of our
principal executive and principal financial officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 ("Exchange Act")) as of March 31,
2010. Disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Commission's rules and forms, and that such information is accumulated
and communicated to management, including the chief executive officer and the
chief financial officer, to allow timely decisions regarding required
disclosures.
Based on that evaluation, our management concluded, as of the end of the
period covered by this report, that our disclosure controls and procedures were
effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Our internal control over financial
reporting is a process, under the supervision of our principal executive and
financial officer, designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial
statements in accordance with United States generally accepted accounting
principles (GAAP). Internal control over financial reporting includes those
policies and procedures that:
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the policies or procedures may deteriorate.
Our management conducted an assessment of the effectiveness of our
internal control over financial reporting as of March 31, 2010, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Our management
has concluded that our internal control over financial reporting is ineffective
based on these criteria. The weaknesses in this area are listed in the report of
our independent registered public accounting firm on our internal control over
financial reporting. See Item 8 of this report.
30
Changes in Internal Controls over Financial Reporting
During the three months ended on March 31, 2010, there has been no change
in internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report includes an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. We have engaged our independent registered public accounting firm to
perform an audit of internal control over financial reporting pursuant to the
rules of the Securities and Commission that permit us to provide only
management's report in this annual report.
ITEM 9B. OTHER INFORMATION.
None
31
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Name Age Title
---- --- -----
Jack Jie Qin 49 President, Principal Executive Officer,
Principal Financial Officer and a Director
George W. Curry 64 Chief Marketing Officer and a Director
Jerry B. Lewin 54 Director
Visman Chow 54 Director
Norman Ko 45 Director
Directors serve in such capacity until the next annual meeting of our
stockholders and until their successors have been elected and qualified. Our
officers serve at the discretion of our Board of Directors, until their death,
or until they resign or have been removed from office.
Jack Jie Qin
Mr. Qin has been serving as our President, Chief Executive Officer and
Chairman of the Board of Directors since November 2007. Mr. Qin was appointed as
our Principal Financial Officer on May 18, 2010. Since January 2004, Mr. Qin has
been serving as the President of EFT BioTech, Inc. From July 1998 to December
2002, Mr. Qin serviced as the President of eFastTeam International, Inc. located
in Los Angeles, California. From June 1992 to December 1997, he served as the
President of LA Import & Export Company located in Los Angeles, California. In
May 1991, Mr. Qin earned an MBA from Emporia State University in Kansas. In May
1982, Mr. Qin graduated from Jiangxi Engineering Institute, located in Nanchang,
China, with a major in Mechanical Engineering.
George W. Curry
Mr. Curry has been serving as our Chief Marketing Officer and as a
Director since November 2007. From 1996 to October 2007, Mr. Curry served as a
sales representative of Mayor Pharmaceutical Labs, Inc. where he marketed
products directly to the public and recruited and trained sales representatives.
From 1992 to 1995, Mr. Curry owned and operated Continental Limited, an import
export business focused on the clothing industry. Mr. Curry has also served as a
motivational speaker at company training seminars throughout the U.S. In 1968,
Mr. Curry earned a Bachelor in Business Administration degree from the
University of North Texas with a major in Marketing.
32
Jerry B. Lewin
Mr. Lewin has been the Senior Vice President of Field Operations (North
America) for the Hyatt Hotel Corporation since 1987. In this position Mr. Lewin
is responsible for, and oversees the operation of, 23 Hyatt Hotels throughout
the East Coast and Canada, including the Grand Hyatt New York in Mid-Town
Manhattan. Prior to his association with the Hyatt Hotel Corporation, Mr. Lewin
served for 10 years in various management positions for Hilton Hotel including
five years as a General manager of the Flamingo Hilton in Las Vegas Nevada.
Visman Chow
Since 1993, Mr. Chow has been serving as the Chief Lending Officer and a
director of Universal Bank. Between 1983 and 1993 Mr. Chow was the President of
Unieast Financial Corporation. From 1979 to 1983, Mr. Chow was with Union Bank
where he managed a commercial real estate portfolio of approximately $50
million.
Norman Ko
Since 2007, Mr. Ko has been a partner with Smith Mandel and Associates,
LLP, a public accounting firm. In this current position Mr. Ko provides audit
and assurance services to private clients in various industry groups along with
SEC audit preparation and tax planning. Prior to his association with Smith
Mandel and Associates, Mr. Ko served as from Vice President and controller for
Citimax, Inc. from 1994 to 1997.
Mr. Lewis, Mr. Chow and Mr. Ko are independent directors as that term is
defined in Section 803.A of the NYSE Amex Company Guide. Mr. Norman Ko is our
"financial expert" as that term is defined in the rules and regulations of the
Securities and Exchange Commission.
Our Board of Directors acts as our audit committee.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Our Board of Directors acts as our compensation committee. During the
year ended March 31, 2010 all of our directors participated in deliberations
concerning executive officer compensation.
During the year ended March 31, 2010 none of our directors were members
of the compensation committee or a director of another entity, which other
entity had one of its executive officers serving as one of our directors or as a
member of our compensation committee.
Code of Ethics
- --------------
We currently have a Code of Ethics for our directors and principal
executive officers. Our Code of Ethics will be sent, without charge, to any
person requesting a copy of the same. To request a copy, send a letter to us at
our address on the cover page of this report.
33
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Exchange Act requires the Registrant's directors and
officers, and persons who beneficially own more than 10% of a registered class
of the Registrant's equity securities, to file reports of beneficial ownership
and changes in beneficial ownership of the Registrant's securities with the SEC
on Forms 3, 4 and 5. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Registrant with copies of all Section
16(a) forms they file.
Jack Jie Qin, our President; and George Curry, our Chief Marketing
Officer, have not filed Forms 3, 4 or 5 to date.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation Discussion and Analysis
The goal of our executive officers' compensation levels is to motivate
the officers to create long-term value for our stockholders. Toward this goal,
we establish compensation levels based on our executive officers' relevant
experience and leadership skills. In addition, we consider the executive
officers' ability and likelihood of contributing to our growth and success. We
also take into account comparable salary ranges at similar companies in order to
attract and retain our executive officers.
We do not have a formula or benchmark or necessarily react to short-term
changes in business performance when reviewing our executive officers' salaries.
We consider their past contributions, their ability to work cohesively with our
management team and our expectations regarding their future performance. Our
executive officers have an active role in the determination of their
compensation and we take into account their opinions and expectations.
Summary Compensation Table
The following table shows, in summary form, the compensation received by
(i) our Chief Executive and Principal Financial officers and (ii) by each other
executive officer who received compensation in excess of $100,000 during the
three fiscal years ended March 31, 2010.
Fiscal All Other
Name and Year Restricted Annual
Principal Ended Stock Option Compen-
Position March 31, Salary Awards (3) Awards (4) sation (5) Total
- ---------------------------------------------------------------------------------------
Jack Jie Qin (6) 2010 $300,000 -- -- -- $300,000
(Principal Executive 2009 $300,000 -- -- -- $300,000
and Acting Chief 2008 $300,000 -- -- -- $300,000
Financial Officer)
George Curry (7) 2010 $132,000 -- $132,000
(Chief Marketing 2009 $120,000 -- -- -- $120,000
Officer) 2008 $ -- -- -- -- --
34
Sharon Tang (8) 2010 -- -- --
(Principal Financial 2009
Officer) 2008
(1) The dollar value of base salary (cash and non-cash) earned.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table calculated in accordance with FASB Codification 718-10-30-3.
(4) The value of all stock options granted during the periods covered by the
table are calculated in accordance with FASB Codification 718-10-30-3.
(5 )All other compensation received that we could not properly report in any
other column of the table including annual contributions or other
allocations to vested and unvested defined contribution plans, and the
dollar value of any insurance premiums paid by, or on behalf of,
country-regionplaceU.S.
(6) Mr. Qin is compensated through December 31, 2011.
(7) Mr. Curry is compensated through December 31, 2011.
(8) Sharon Tang was our Principal Financial Officer between June 2008 and
February 2010.
Compensation of Directors During Year Ended March 31, 2010
- ----------------------------------------------------------
Stock Option
Name Paid in Cash Awards Awards Total
- ---- ------------ ------ ------ -------
Jerry B Lewin $10,000 -- -- $10,000
- ---------------------------------------------------------------------
Visman Chow $10,000 -- -- $10,000
- ---------------------------------------------------------------------
Norman Ko $20,000 -- -- $20,000
- ---------------------------------------------------------------------
Our directors are also reimbursed for reasonable out-of-pocket expenses
incurred in connection with attendance at director and committee meetings. Stock
Option and Bonus Plans.
To date, we have not adopted a stock option plan a stock bonus plan or any
other type of incentive plan. We have not issued any options to our executive
officers, directors or employees.
35
Long-Term Incentive Plans.
We do not have any pension, stock appreciation rights, long-term incentive
or other plans. We may implement these plans at a future date, although we have
no present intentions to do.
Employee Pension, Profit Sharing or other Retirement Plans.
We do not have a defined benefit, pension plan, profit sharing or other
retirement plan, although it we may adopt one or more of such plans in the
future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table shows the beneficial ownership of our common stock as
of May 31, 2010 by (i) each of our directors and executive officers, (ii) all
directors and executive officers as a group, and (iii) each owner of more than
5% of our common stock.
Number of Shares Percent of Shares
Name Beneficially Owned Outstanding
- ---- ------------------ -----------------
Jack Jie Qin 1,000 *
George W. Curry 300,000 *
Jerry B. Lewin -- --
Visman Chow -- --
Norman Ko -- --
Dragon Win Management, Ltd. (1) 52,099,000 68.57%
Officers and Directors
as a group (5 persons) 301,000 *
* Less than 1%.
(1) Ning-Sheng Cai and Xiao-Bao Hu are the controlling persons of Dragon Win.
The address of each shareholder listed above, with the exception of Dragon
Win Management, Ltd., is in care of us at 17800 Castleton St., Suite 300, City
of Industry, CA 91748. The address of Dragon Win Management, Ltd. is Palm Grove
Houses, addressStreetP.O. Box 438, CityRoad Town, Tortola, placeBritish Virgin
Islands.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
In November 2007 we issued 53,300,000 shares of our common stock in
exchange for all of the issued and outstanding shares of EFT BioTech, Inc. EFT
BioTech, at the time of this transaction, was selling the products we currently
sell.
36
In connection with this transaction, Dragon Win Management Limited, a
British Virgin Islands company, received 52,099,000 shares of our common stock
in exchange for its interest in EFT BioTech, Inc.
See Item 1 of this report (Intellectual Property subsection) for
information concerning our agreement with EFT Assets Limited.
See Item 7 of this report (Capital Resources and Liquidity subsection) for
information concerning our outstanding loans to Excalibur International Marine
Corporation.
We use the "EFT" name, a trademark owned and licensed to us by EFT Assets
Limited. We are required to pay an annual royalty to EFT assets equal to a
percentage of our gross sales for the previous fiscal year. The percentage is 5%
for the first $30 million in gross sales, 4% for the $10 million in gross sales
in excess of $30 million, 3% for the $10 million in gross sales in excess of $40
million; 2% for the $10 million in gross sales in excess of $50 million; and 1%
for the $10 million in gross sales in excess of $60 million. EFT Assets Limited
is owned by a number of person, including Wendy Qin. Ms. Qin is the Chief
Executive Officer of one of our subsidiaries and is the sister of Jack Jie Qin,
our President. During the years ended March 31, 2010 and 2009 we paid EFT Asset
Limited $2,059,445 and $2,313,137 in royalties.
Any proposed transaction with a related party is reviewed by our Board of
Directors. In reviewing the proposed transaction, the Board considers the
related party's relationship with us, all conflicts of interest that may exist
or otherwise arise on account of the transaction, the material facts relating to
the proposed transaction, and whether the transaction is on terms comparable to
those that could be obtained in arms-length dealing with an unrelated third
party.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Child, Van Wagoner & Bradshaw, PLLC audited our financial statements for the
years ended March 31, 2010 and 2009. The following table shows the aggregate
fees billed to us during these years by Child, Van Wagoner & Bradshaw.
2010 2009
---- ----
Audit Fees 125,000 $84,500
Audit-Related Fees 14,302 25,500
Tax Fees 7,000 7,000
All Other Fees 7,530 18,953
Audit fees represent amounts billed for professional services rendered for
the audit of our annual financial statements and the review of our interim
financial statements. Audit related fees represent fees paid for review of
responses to SEC comments. All other fees represent out pocket fees. Before
Child, Van Wagoner & Bradshaw was engaged by us to render these services, the
engagement was approved by our Directors.
37
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No.: Description:
3.1(1) Articles of Incorporation of GRG, Inc. (now EFT BioTech Holdings,
Inc.).
3.1.1(1) Articles of Merger filed December 28, 2004 between HumWare Media
Corporation, World Wide Golf Web, Inc. and GRG, Inc.
3.1.2(1) Certificate of Amendment, effective November 7, 2007, to the
Articles of Incorporation of HumWare Media Corporation
3.2(3) By-laws
4.1(1) Form of Common Stock Certificate
4.2(1) Form of Warrant to purchase one share of Common Stock for a
purchase price of $3.80 per share until the second anniversary date
of the date of issuance
10.1(3) Share Exchange Agreement, dated as of the 1st day of November,
2007, by and among EFT BioTech Holdings, Inc. (formerly HumWare
Media Corporation), a Nevada corporation; certain EFT Shareholders
and EFT BioTech Corporation, a Nevada corporation
10.2(2) Subscription Agreement for Units in connection with the
Registrant's Regulation S Private Placement
10.3(3) Employment Agreement, dated May 10, 2008, between EFT BioTech
Holdings, Inc. and Sharon Tang
10.4(5) $500,000 Loan Agreement (the "Agreement"), dated November 24, 2008
, between the EFT Biotech Holdings, Inc. (as the Lender), EFT
Investment Co., LTD., and Excalibur International Marine
Corporation (as the Borrower).
10.5(5) First Extension of $500,000 Loan, dated December 25, 2008
10.6(5) Second Extension of $500,000 Loan, dated May 25, 2009
10.7(6) $2,000,000 Loan Agreement (the "Agreement") and promissory note,
dated September 23, 2008, between the EFT Biotech Holdings, Inc.
(as the Lender), EFT Investment Co., LTD., and Excalibur
International Marine Corporation (as the Borrower).
10.8(5) First Extension of $2,000,000 Loan, dated November 25, 2008
10.9(5) Second Extension of $2,000,000 Loan, dated May 25, 2009
10.10(6) $600,000 Loan Agreement, dated May 13, 2009, between the EFT
Biotech Holdings, Inc. (as the Lender), EFT Investment Co., LTD.,
and Excalibur International Marine Corporation (as the Borrower).
10.11(6) Addendum to $600,000 Loan Agreement, dated May 13, 2009, between
the EFT Biotech Holdings, Inc. (as the Lender), EFT Investment Co.,
LTD., and Excalibur International Marine Corporation (as the
Borrower).
10.12 (7) $330,000 Loan Agreement, dated July 14, 2008, between EFT
BioTech Holdings, Inc. (Lender) and Yeuh-Chi Liu (Borrower)
38
10.13 (7) Addendum to $330,000 Loan Agreement, dated July 15, 2008, between
BioTech Holdings, Inc. and Yeuh-Chi Liu
10.14 (7) $1,567,000 Loan Agreement, dated July 25, 2008, between BioTech
Holdings, Inc. (Lender) and Yeuh-Chi Liu (Borrower)
10.15(8) Subscription Agreement with Excalibur International Marine
Corporation.
10.16(8) Extension of $2,000,000 loan with Excalibur International Marine
Corporation.
10.17(8) Extension of $600,000 loan with Excalibur International Marine
Corporation.
10.18(8) Extension of $500,000 loan with Excalibur International Marine
Corporation.
14.1(3) Code of Ethics
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
(1) Filed as an exhibit to Form 10 (File No.: 001-34222) filed with the SEC on
December 10, 2008 and incorporated by reference herein.
(2) Filed as an exhibit to Form 10-Q for the quarter ended December 31, 2008
(File No.: 001-34222) filed with the SEC on February 13, 2009 and
incorporated by reference herein.
(3) Filed as an Exhibit to Amendment No. 1 to Form 10 (File No.: 001-34222)
filed with the SEC on April 13, 2009 and incorporated by reference herein.
(4) Filed as an Exhibit to Amendment No. 2 to Form 10 (File No.: 001-34222)
filed with the SEC on April 21, 2009 and incorporated by reference herein.
(5) Filed as an Exhibit to Form 10-K (File No.: 001-34222) filed with the SEC
on July 17, 2009 and incorporated by reference herein.
(6) Filed as an Exhibit to Amendment No. 4 to Form 10 (File No.: 001-34222)
filed with the SEC on September 3, 2009 and incorporated by reference
herein.
(7) Filed as an Exhibit to Amendment No. 5 to Form 10 (File No.: 001-34222)
filed with the SEC on October 19, 2009 and incorporated by reference
herein.
(8) Filed as an Exhibit to Amendment No. 9 to Form 10 (File No.: 001-34222)
filed with the SEC on April 16, 2010.
39
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 22nd day of June 2010.
EFT BIOTECH HOLDINGS, INC.
By: /s/ Jack Jie Qin
--------------------------------------
Jack Jie Qin, Principal Executive and
Principal Financial Officer
Pursuant to the requirements of the Securities Act of l934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Jack Jie Qin Director June 22, 2010
- ----------------------
Jack Jie Qin
/s/ George W. Curry Director June 22, 2010
- ----------------------
George W. Curry
- ----------------------
Jerry B. Lewin Director
/s/ Visman Chow
- ----------------------
Visman Chow Director June 22, 2010
/s/ Norman Ko
- ----------------------
Norman Ko Director June 22, 2010
EFT BIOTECH HOLDINGS, INC.
FORM 10-K
EXHIBITS