Edgar Filing: EFT Holdings, Inc.

Year Ending March 31,

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

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

For the transition period from _____ to _______

Commission File Number: 000-53730

EFT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

17800 Castleton St., Suite 300

City of Industry, CA 91748

(Address of Principal Executive Offices) (Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

As of the latest practicable date, November 14, 2012, the registrant had 75,983,201 outstanding shares of common stock.

INDEX

		Page

	Part I — Financial Information

Item 1.	Financial Statements.	4
Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and March 31, 2012		4
Consolidated Statements of Income for the Three Months and Six Months Ended September 30, 2012 and 2011 (Unaudited)		5
Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended September 30, 2012 and 2011 (Unaudited)		6
Consolidated Statements of Changes in Equity (Unaudited)		7
Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2012 and 2011 (Unaudited)		8
Notes to Consolidated Financial Statements for the Three Months and Six Months Ended September 30, 2012 and 2011 (Unaudited)		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	31
Item 4.	Controls and Procedures.	31

	Part II — Other Information

Item 1.	Legal Proceedings.	32
Item 1A.	Risk Factors.	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	32
Item 3.	Defaults Upon Senior Securities.	32
Item 4.	Mine Safety Disclosures.	32
Item 5.	Other Information.	32

Item 6.	Exhibits.	33

Signatures

Cautionary Statement

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update these forward-looking statements. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this quarterly report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 as filed with the Securities and Exchange Commission.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

EFT HOLDINGS, INC.

Consolidated Balance Sheets

	September 30, 2012			March 31, 2012
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	3,510,811		$	4,346,517
Securities available for sale		17,575,921			10,082,372
Inventories		2,388,607			3,348,416
Prepaid expenses		277,157			330,778
Other receivables		487,278			364,512
Total current assets		24,239,774			18,472,595

Restricted cash		193,992			193,992
Property and equipment, net		7,308,617			7,824,241
Investment in developments in progress		20,779,249			20,779,249
Security deposit		436,429			435,804
Total assets	$	52,958,061		$	47,705,881
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	2,364,676		$	2,289,648
Commission payable		4,147,512			4,351,420
Other liabilities		563,074			637,141
Unearned revenues		3,427,056			3,436,506
Short-term loan		7,937,288			-
Due to related parties		47,798			46,083
Total current liabilities		18,487,404			10,760,798
Contingent liabilities		2,564,103			2,597,403
Total liabilities		21,051,507			13,358,201

Equity
EFT Holdings, Inc. stockholders' equity:
Preferred stock, $0.001 par value, 25,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.00001 par value, 4,975,000,000 shares authorized, 75,983,201 shares issued and outstanding at September 30 and March 31, 2012		760			760
Additional paid in capital		52,854,891			52,854,891
Retained deficits		(17,785,760	)		(15,771,169	)
Accumulated other comprehensive income		747,905			708,431
Total EFT Holdings, Inc. stockholders’ equity		35,817,796			37,792,913
Non-controlling interest		(3,911,242	)		(3,445,233	)
Total equity		31,906,554			34,347,680
Total liabilities and equity	$	52,958,061		$	47,705,881

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

EFT HOLDINGS, INC.

Consolidated Statements of Income (Unaudited)

	Three Months Ended						Six Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011

Sales revenues, net	$	488,824		$	2,722,379		$	1,090,910		$	12,242,673
Shipping charges		108,891			362,073			226,508			1,363,883
Access fees/(refund)		(16,960	)		-			91,310			-
Transportation income – Excalibur		-			12			-			1,024
		580,755			3,084,464			1,408,728			13,607,580
Cost of goods sold		127,184			722,378			263,120			1,912,974
Shipping costs		-			356,851			418			987,813
Operating costs - Excalibur		248,516			262,834			503,078			554,307
		375,700			1,342,063			766,616			3,455,094
Gross profit		205,055			1,742,401			642,112			10,152,486
Operating expenses:
Selling, general and administrative expenses		1,398,389			1,893,262			2,845,317			3,875,373
Inventory obsolescence		23,392			-			707,079			-
Marketing expenses		-			66,554			-			107,995
Royalty expenses – Related party		56,104			442,476			115,156			714,401
Total operating expenses		1,477,885			2,402,292			3,667,552			4,697,769
Net operating income/(loss)		(1,272,830	)		(659,891	)		(3,025,440	)		5,454,717
Other income/(expense)
Interest income		208,782			111,977			302,021			297,373
Interest expense		(59,774	)		-			(96,347	)		-
Gain/(loss) on disposal of fixed assets		20			-			(12,636	)		-
Gain on disposal of securities available-for-sale		71,341			8,364			70,722			94,364
Dividend income		11,195			13,525			25,654			26,053
Foreign exchange gain/(loss)		584,230			(1,523,520	)		509,400			(911,878	)
Other income		733			2,369			2,361			4,762

Total other income/(expense)		816,527			(1,387,285	)		801,175			(489,326	)

Net income/(loss) before income taxes and non-controlling interest		(456,303	)		(2,047,176	)		(2,224,265	)		4,965,391
Income tax benefit/(expenses)		(13,138	)		64,900			(13,138	)		64,900
Net income/(loss)		(469,441	)		(1,982,276	)		(2,237,403	)		5,030,291
Non-controlling interest		118,848			335,277			222,812			665,112
Net income/(loss) attributable to EFT Holdings, Inc.		(350,593	)	$	(1,646,999	)		(2,014,591	)	$	5,695,403

Net income/(loss) per common share
Basic and diluted	$	0.00		$	(0.02	)	$	(0.03	)	$	0.07
Weighted average common shares outstanding
Basic and diluted		75,983,201			75,983,201			75,983,201			75,983,201

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

EFT HOLDINGS, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended						Six Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income/(loss)	$	(469,441	)	$	(1,982,276	)	$	(2,237,403	)	$	5,030,291

Other comprehensive income/(loss)
Foreign currency translation adjustment		(483,774	)		519,147			(212,214	)		795,792
Unrealized gain on securities available for sale		311,620			(174,290	)		251,688			(92,964	)
Comprehensive income		(641,595	)		(1,637,419	)		(2,197,929	)		5,733,119
Less: Comprehensive loss attributable to non-controlling interests		(123,246	)		1,291,507			(243,197	)		961,672
Comprehensive income/(loss) attributable to EFT Holdings, Inc.	$	(518,349	)	$	(2,928,926	)	$	(1,954,732	)	$	4,771,447

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

EFT HOLDINGS, INC.

Consolidated Statements of Changes in Equity (Unaudited)

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

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

Comprehensive income:
Net income/(loss)	-		-		-		3,587,525			-			(1,550,358	)		2,037,167
Unrealized gain on securities available for sale	-		-		-		-			200,964			-			200,964
Foreign currency translation adjustment	-		-		-		-			44,677			264,997			309,674

BALANCE, MARCH 31, 2012	75,983,201	$	760	$	52,854,891	$	(15,771,169	)	$	708,431		$	(3,445,233	)	$	34,347,680

Comprehensive income:
Net loss	-		-		-		(2,014,591	)		-			(222,812	)		(2,237,403	)
Unrealized loss on securities available for sale	-		-		-		-			251,688			-			251,688
Foreign currency translation adjustment	-		-		-		-			(212,214	)		(243,197	)		(455,411	)

BALANCE, SEPTEMBER 30, 2012	75,983,201	$	760	$	52,854,891	$	(17,785,760	)	$	747,905		$	(3,911,242	)	$	31,906,554

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

EFT HOLDINGS, INC.

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
	September 30, 2012			September 30, 2011
Cash flows from operating activities:
Net income/(loss)	$	(2,237,403	)	$	5,030,291
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization		563,015			557,566
Gain from securities available for sale		(70,722	)		(94,364	)
Stock compensation		(6,098	)		-
Provision for Inventory obsolescence		707,079			-
Loss on disposal of fixed assets		12,636			-
Changes in operating assets and liabilities:
Inventories		252,730			(1,036,963	)
Prepaid expenses and other receivables		(20,773	)		33,446
Accounts payable		52,509			337,557
Commission payable		(203,908	)		(2,187,077	)
Other liabilities		(98,975	)		285,230
Unearned revenues		(9,450	)		(10,074,433	)
Net cash used in operating activities		(1,059,360	)		(7,148,747	)

Cash flows from investing activities:
Additions to fixed assets		(57,954	)		(77,946	)
Additions to intangible assets		-			(11,285	)
Investment in development in progress		-			(20,632,737	)
Purchase of securities available for sale		(17,285,165	)		(683,623	)
Proceeds from available for sales securities		10,120,125			5,798,748
Net cash used in investing activities		(7,222,994	)		(15,606,843	)

Cash flows from financing activities
Proceeds from short-term loans		7,937,289			-
Net cash provided by financing activities		7,937,289			-

Effect of exchange rate changes on cash		(490,641	)		701,362
Net decrease in cash		(835,706	)		(22,054,228	)
Cash, beginning of period		4,346,517			26,805,205
Cash, end of period	$	3,510,811		$	4,750,977
Supplemental disclosures of cash flow information:
Interest expenses paid in cash	$	3,294		$	-
Income taxes paid in cash	$	12,109		$	-

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

EFT HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - ORGANIZATION

EFT Holdings, Inc., “EFT Holdings” or the “Company,” formerly EFT Biotech Holdings, Inc., was incorporated in the State of Nevada on March 19, 1992.

On November 18, 2007, the Company issued 53,300,000 shares of its common stock in connection with a share exchange with the stockholders of EFT BioTech, Inc., “EFT BioTech,” a Nevada Corporation formed on September 18, 2007, the “Transaction,” pursuant to which EFT BioTech became a wholly-owned subsidiary of the Company. The 53,300,000 common shares issued included 52,099,000 to pre-capitalization shareholders and 1,201,000 to four directors and officers of EFT BioTech, and represented approximately 87.34% of the Company’s common stock outstanding after the Transaction. Consequently, the stockholders of EFT BioTech owned a majority of the Company's common stock immediately following the Transaction. As EFT Holdings was a non-operating public shell corporation that acquired an operating company, this Transaction was treated as a capital transaction where the acquiring corporation issued stock for the net monetary assets of the shell corporation, accompanied by a recapitalization. The accounting is similar in form to a reverse acquisition, except that goodwill or other intangibles are not recorded. All references to EFT BioTech common stock have been restated to reflect the equivalent numbers of EFT Holdings common shares.

The Company’s business is classified by management into three reportable segments: online, transportation and beverage. These reportable segments are three distinct businesses, each with a different customer base, marketing strategy and management structure. Substantially all of the Company’s revenue is generated from Mainland China.

The online business reportable segment is an aggregation of the Company’s online operating segments, which are organized to sell the Company’s products to “Affiliates” through its website. To become an Affiliate, a customer must be recommended by another Affiliate, make a minimum purchase of $600, and pay $60 for shipping and handling fees. The Company, through its subsidiaries, uses the internet as its ‘storefront’ and business platform to sell and distribute American brand products consisting of 27 different nutritional products, some of which are oral sprays, 21 different personal care products, an environmentally protective automotive product, an environmentally friendly house cleaner and a flip top portable drinking container. The Company also assigned network access rights to third-party companies, which, in return, compensate EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the e-phone and traveler program. However, for Affiliates that enter the $800 and $8,000 travel programs, an access fees in the amount of $30, respectively, and $300 will be paid.

The transportation business reportable segment derives revenue from transporting passengers and cargo between Taiwan and Mainland China through the Taiwan Strait. On July 25, 2008, the Company loaned $1,567,000 to Yeuh-Chi Liu, a vendor to the Company. The proceeds of the loan were used by Yeuh-Chi Liu to acquire a 3.97% interest in Excalibur International Marine Corporation, “Excalibur,” which was offered as collateral for the loan. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since July 23, 2008. On October 25, 2008, EFT Investment Co. Ltd., “EFT Investment,” a subsidiary of the Company, acquired 48.81% of Excalibur’s capital stock. Due to this combined ownership and the substantial financial support EFT Investment has provided to Excalibur to fund its operations and other factors, EFT Investment is deemed to have a controlling interest in Excalibur as defined by Accounting Standards Codification, “ASC,” Topic 810, Consolidation, which required the Company to consolidate the financial statements of Excalibur.

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

The beverage reportable segment derives revenue and expense from the bottled water factory in Baiquan, Heilongjiang Province, China. This bottled water factor is expected to start production in the first quarter of 2013.

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

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these consolidated financial statements for the six months ended September 30, 2012 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012.

Recent accounting pronouncements

The Company has evaluated recent accounting pronouncements and their adoption has not had and is not expected to have a material impact on the Company’s financial position or results of operations.

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

Note 3 - FAIR VALUE MEASUREMENTS

ASC Topic 820 defines fair value, establishes a framework for measuring fair value and enhances disclosure requirements for fair value measurements. This topic does not require any new fair value measurements. ASC Topic 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 —

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 —

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

Level 3 —

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

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In accordance with ASC Topic 820, the Company measures its securities available for sale at fair value. The securities available for sale are classified within Level 1 since they are valued using quoted market prices.

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

Assets measured at fair value are summarized below:


		September 30, 2012
		Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs	Total
Securities available for sale - Corporate bonds	$	17,575,921	$	-	$	-	$17,575,921
CTX Virtual Technologies		-		-		-	-
Total assets measured at fair value	$	17,575,921	$	-	$	-	$17,575,921


		September 30, 2012
		Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs	Total
Securities available for sale - Corporate bonds	$	10,082,372	$	-	$	-	$10,082,372
CTX Virtual Technologies		-		-			-
Total assets measured at fair value	$	10,082,372	$	-	$	-	$10,082,372

Note 4 – INVENTORIES

Inventories are valued at the lower of cost, determined on a first-in, first-out or market basis. Inventory consists of nutritional, personal care, automotive additive, environmentally safe products, portable drinking containers and EFT-Phone. The Company has two warehouses, one in City of Industry, CA and the other in Kowloon, Hong Kong. The Company also consigned some of its inventories to two logistic service providers in China. On a quarterly basis, the Company’s management reviews inventory levels in each country for estimated obsolescence or unmarketable items, as compared with future demand requirements and the shelf life of the various products. Based on this review, the Company records inventory write-downs when costs exceed expected net realizable value.

The components of inventories were as follows:

	September 30, 2012			March 31, 2012
Raw materials	$	55,530		$	33,691
Supplies		12,307			11,449
Finished goods		2,936,522			3,303,276
		3,004,359			3,348,416
Less: Provision for inventory obsolescence		(615,751	)		-
	$	2,388,607		$	3,348,416

As discussed in Note 14, the Company’s inventories were collateralized for a short-term loan as of September 30, 2012.

Note 5 - RESTRICTED CASH

On August 20, 2009, Taiwan Taipei district court froze Excalibur’s cash ($193,992) as a result of a lawsuit filed by Marinteknik Shipbuilders (S) Pte Ltd., a Singapore company, against Excalibur in the Taiwan Taichung District Court. The lawsuit claims Excalibur owes service fees and out-of-pocket expenses of $249,731 to Marinteknik Shipbuilder (S) Pte Ltd. As of September 30 and March 31, 2012, restricted cash remained unchanged.

Note 6 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	September 30, 2012			March 31, 2012
Construction in progress	$	-		$	3,547
Transportation equipment		11,611,785			11,611,785
Property and plant		980,018			914,535
Leasehold improvements		513,586			518,659
Automobiles		241,023			241,023
Computer equipment		129,546			169,959
Furniture and fixtures		95,696			95,685
Machinery and equipment		310,048			349,128
		13,881,702			13,904,321
Less: Accumulated depreciation		(6,573,085	)		(6,080,080	)
	$	7,308,617		$	7,824,241

Note 7 - LOANS TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

The board of directors of the Company approved a non-interest bearing demand loan in the amount of $1,567,000 on July 25, 2008 to Yeuh-Chi Liu, a vendor to the Company. The $1,567,000 loan was used by Yeuh-Chi Liu to purchase a 3.97% ownership interest in Excalibur, see Note 9, and is collateralized by that interest. Yeuh-Chi Liu has served as a member of the board of directors of Excalibur since July 23, 2008. The Company does not expect that this loan will be repaid and the loan was written off as of December 31, 2010. The Company has not yet enforced its interest in the collateral.

The Company uses the “EFT” name, a trademark owned and licensed to it by EFT Assets Limited. The Company is required to pay an annual royalty to EFT Assets Limited equal to a percentage of its gross sales for the previous fiscal year. The percentage is 5% for the first $30 million in gross sales, 4% for the $10 million in gross sales in excess of $30 million, 3% for the $10 million in gross sales in excess of $40 million; 2% for the $10 million in gross sales in excess of $50 million; and 1% for the $10 million in gross sales in excess of $60 million. EFT Assets Limited is owned by a number of persons, including Wendy Qin, director of EFT International Ltd. Ms. Qin is the sister of Jack Jie Qin, the Company’s president. During the six months ended September 30, 2012 and 2011, the royalties payable to EFT Assets Limited were $115,156 and $714,401, respectively.

The Company rents a 6,500 square foot office space for its satellite training center in Hong Kong. This office is located at Langham Office Tower, 8 Argyle Street, Suite 3706, Kowloon, Hong Kong SAR. The leased space is owned by a number of persons, including Wendy Qin, a director of EFT (HK) Ltd. and the sister of Jack Qin, the Company’s president. The lease for this space expires on March 31, 2015, with a monthly rental of $30,900. During the six months ended September 30, 2012 and 2011, the Company paid the lessor $185,567 and $188,946, respectively, in rental expense.

In March 2010, one of the Company’s subsidiaries, EFT International Ltd., entered into a consultancy agreement with JFL Capital Limited, a company in which Wendy Qin serves as a director and is one of the principal shareholders. Under this agreement, EFT International Ltd. engaged JFL Capital Limited to provide EFT International Ltd. consultancy services on administration, financial matters, corporate planning and business development commencing from April 1, 2010, and the annual fee will be increased at the rate of $15,000 each year. The agreement may be terminated by either party on three months’ written notice. During the six months ended September 30, 2012 and 2011, EFT International Ltd. paid JFL Capital Limited consultancy fees of $172,500 and $165,000, respectively.

Note 8 – INVESTMENT IN DEVELOPMENT IN PROGRESS

On May 2, 2011, Jack Qin, as an agent, entered into two series of agreements, one series with Meifu Development Co., Ltd. (“Meifu”) and the other series with TransGlobe Life Insurance Inc. (“TransGlobe”), to purchase an office building located in Taipei, Taiwan (the “Taiwan Building”). The Taiwan Building consists of 14 floors and 144 parking spaces. The agreements signed with Meifu related to the purchase of the 8^th -14^th floors, 1 out of 2 units on the 7^th floor and 79 parking spaces, while the agreements signed with TransGlobe were for the purchase of the 1^st -6^th floors, the other unit on the 7^th floor and the remaining 65 parking spaces in the Taiwan Building. The Taiwan Building is under construction and will be completed by the end of 2013. The total purchase price for the Taiwan Building is approximately $238.1 million. The Company intended to retain one floor of the Taiwan Building for its own business operations and planned to sell the majority of the remaining floors.

On July 1, 2011 and July 7, 2011, EFT Investment Co. Ltd. (“EFT Investment”), a wholly-owned subsidiary of the Company, as a party to the contract in place of Jack Qin, entered into two sets of agreements (the “July 2011 Agreements”) with the sellers of the Taiwan Building that provided for substantially the same rights and obligations as the original May 2, 2011 agreements. Pursuant to the terms of the July 2011 Agreements, EFT Investment was obliged to pay the remaining twelve outstanding installments with various amounts due up to the scheduled completion of the Taiwan Building. Each subsequent quarterly payment, starting from April 20, 2012, was approximately $4 million. Finally, the residual payment of approximately $163.6 million was due at the time of completion of the Taiwan Building. As of September 30, 2012, payment of NTD600 million, approximately $20.8 million, has been made.

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

On June 15, 2012, EFT Investment received a letter (the “Meifu Letter”) from Meifu wherein Meifu served notice of termination (as of that date) of its contracts with EFT Investment for the purchase of the Taiwan Building and a purported forfeiture of EFT Investment’s deposit of approximately $17.1 million (the “Deposit”). Subsequently, on June 29, 2012, EFT Investment’s local counsel issued a letter to Meifu alleging fraud and misrepresentation by Meifu during the course of the transactions. EFT Investment contended that the Meifu Letter and the purported termination of contracts between Meifu and EFT Investment were invalid and demanded the return of the Deposit and construction advances. On July 3, 2012, EFT Investment’s local counsel issued a letter to TransGlobe with substantially the same contentions as contained in the June 29, 2012 letter to Meifu, and therein argued that the contracts between TransGlobe and EFT Investment were terminated and requested that all payments made to TransGlobe be returned.

Note 9 – EXCALIBUR

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

The Company consolidates Excalibur based on a three-month lag with the Company’s reporting periods. All inter-company accounts and transactions were eliminated in consolidation. The following table provides a summary of balance sheet information for Excalibur as of June 30, 2012 and 2011, which is consolidated in the Company’s financial statements as of September 30, 2012 and 2011:

	Excalibur International Marine Corporation
	June 30, 2012				June 30, 2011
	NTD*		USD		NTD		USD
Total assets	226,336,811		6,390,402		268,817,393		9,870,746
Total liabilities	409,306,024		13,974,258		387,937,568		13,470,054
Net liabilities	(182,969,213	)	(7,583,856	)	(119,120,175	)	(3,599,308	)
48.81% ownership	(89,307,273	)	(3,701,680	)	(58,142,557	)	(1,756,822	)

*NTD: New Taiwan Dollar

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

Additional information concerning Excalibur is included in Notes 13 (Contingent Liabilities) and 19 (Litigation).

Note 10- INVESTMENT IN CTX VIRTUAL TECHNOLOGIES

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

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

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

On September 23, 2011, CTX released its audited annual financial results for the year ending December 2010 and its unaudited results for the six month period ending June, 2011. For the year ending December 31, 2010 CTX, reported consolidated revenue of $34.3 million, gross profit of $6.2 million and income from operations of $2.0 million. After various non-operating expenses of $9.2 million and an income tax benefit of $0.7 million, CTX reported a net loss for the year of $6.5 million. For the six-month period ended June 30, 2011, CTX reported consolidated revenue of $17.2 million, gross profit of $2.9 million and income from operations of $1.4 million. After various non-operating expenses of $0.8 million and no income tax expense, CTX reported net income for the six-month period of $0.8 million.

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

On September 30, 2012, the closing market price of CTX common stock, as reported by NASDAQ, was $0.97 per share, based on a trade of 200 shares on September 24, 2012. Prior to that trade, the closing market price of CTX common stock, as reported by NASDAQ, was $1.19 per share. This company’s common stock continues to be very thinly traded and, as reported by NASDAQ, a total of 9,500 common shares were traded during the six months ended September 30, 2012 at an average price, based on reported closing prices, of $1.23. Because of the lack of a sufficiently active market, the Company does not believe that quoted market prices for CTX’s common stock are a reliable indicator of the fair value of our investment.

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

As discussed in Note 14, the Company’s investment in CTX has been used to collateralize a short-term loan.

Note 11 - OTHER LIABILITIES

Other liabilities consist of the following:

	September 30, 2012		March 31, 2012

Payroll liabilities	$	106,197	$	104,723
Warranty liabilities		3,890		3,748
Accrued expenses		438,722		509,088
Provision for tax		5,824		4,788
Others		8,441		14,794
	$	563,074	$	637,141

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

	September 30, 2012			March 31, 2012
Warranty liability as at beginning of period, current	$	3,748		$	88,784
Cost accrued/(reversal) of costs		4,426			(73,753	)
Service obligations honored		(4,284	)		(11,283	)
Warranty liability as at end of period, current	$	3,890		$	3,748

Note 12 – DUE TO RELATED PARTIES

	September 30, 2012		March 31, 2012
Amount due to related parties:	$	47,798	$	46,083

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

Note 13 - CONTINGENT LIABILITIES

The Company’s controlled subsidiary, Excalibur, purchased the vessel “OceanLaLa” from a British Virgin Islands, “BVI,” company, Ezone Capital Co. Ltd., in 2008. The purchase price was EURO16,000,000, equivalent to approximately $23.7 million. The vessel was delivered to Excalibur and registered as owned by Excalibur at the end of 2008. The last payment of EURO2,000,000, equivalent to approximately $2,564,103, is still under dispute as Excalibur believes that certain special equipment relating to the OceanLaLa, including special tooling, was not delivered at the time of sale and that one of the Ezone’s directors did not act in good faith and was involved in self-dealing.

Note 14 – SHORT-TERM LOAN

As discussed in Note 8, EFT Investment was obliged to pay the remaining twelve outstanding installments (with various amounts due) for the Taiwan Building up to the scheduled completion. As of September 30, 2012, the Company had received approximately $7.9 million from a third-party, non-affiliate lender, Elite Capital Company Limited (Hong Kong), in order to provide additional cash funds for payments related to the Taiwan building. The loan agreement was signed on September 13, 2012, with an effective date of May 2, 2012.

The loan is for an amount not to exceed $8 million, and bears an interest rate of 3% per annum. The balance of the loan is to be repaid within thirty (30) business days of the applicable maturity date (October 31, 2012). The loan is collateralized by the Company’s investment in CTX and inventories, with a combined book value before impairment of approximately $8 million.

Note 15 – STOCKHOLDERS’ EQUITY

Common stock

As of September 30, 2012, the Company had 4,975,000,000 shares of common stock authorized and 75,983,201 shares issued and outstanding.

The Company did not issue any shares of common stock during the six months ended September 30, 2012.

Warrants

As of September 30, 2012, the Company’s subsidiary Digital Development Partners Inc. has 2,000,000 common stock warrants outstanding, and 330,665 Series A and 330,665 Series B warrants outstanding, which are accounted for as equity instruments. The 2,000,000 warrants will expire on June 1, 2014 and permit the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share. The Series A and Series B warrants will expire on September 30, 2014 and permit the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share and $1.25 per share, respectively.

Note 16 - INCOME TAXES

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

The Company generated substantially all of its net income from its BVI operations for the six months ended September 30, 2012. According to BVI tax law this income is not subject to any taxes. The Company’s HK SAR subsidiaries are subject to a 16.5% profit tax based on its taxable net profit. EFT (HK) Ltd provides management service to a BVI subsidiary, and the BVI subsidiary reimburses EFT HK Ltd for its total operating expenses plus 5% mark up, and the income is subject to 16.5% profit tax. The deferred tax assets for the Company’s US operations and HK SAR subsidiaries were immaterial for the six months ended September 30, 2012.

The Company’s Taiwanese subsidiary and its factory in mainland China, are subject to a 17% and 25% standard enterprise income tax, respectively, based on its taxable net profit. These subsidiaries have incurred net accumulated operating losses for income tax purposes and believe that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, it has provided full valuation allowance for the deferred tax assets arising from the losses as of September 30, 2012 and 2011.

The income tax expenses consist of the following:

	Six Months Ended September 30,
	2012		2011
Current:
Domestic	$	12,109	$	-
Foreign		1,029		-
Over-provision for prior years		-		(64,900	)
Deferred		-		-
Income tax expenses/(benefit)	$	13,138	$	(64,900	)

A reconciliation of income taxes, with the amounts computed by applying the statutory federal income tax rate, 37% for the six months ended September 30, 2012 and 2011, to income before income taxes for the six months ended September 30, 2012 and 2011, is as follows:

	Six Months Ended September 30,
	2012			2011
Income tax/(provision) at U.S. statutory rate	$	(903,180	)	$	2,107,299
State tax		12,109			-
Indefinitely invested earnings/(incurred losses) of foreign subsidiaries		898,820			(2,144,232	)
Nondeductible expenses		4,360			36,933
Foreign subsidiary income tax		1,029			-
Over-provision for prior years		-			(64,900	)
Income tax expenses/(benefit)	$	13,138		$	(64,900	)

The Company does not have any uncertain tax positions. In accordance with ASC Topic 740, interest associated with unrecognized tax benefits are classified as income tax and penalties are classified in selling, general and administrative expenses in the statements of operations. For the six months ended September 30, 2012, due to amendment of 2007 tax return, approximately $97,000 was provided for related interest and penalty expenses. The Company is currently under audit by the U.S. Internal Revenue Service for the tax year ended March 31, 2009. This audit is currently in the discovery stage, and the Company cannot determine at this stage if the audit will result in an additional liability or a refund.

Note 17 - COMMITMENTS

Executive Offices

The Company leases 3,367 square feet of space in California that serves as its principal executive offices. The lease expires in February 2013. The monthly rent for the fiscal year ended March 31, 2013 is $9,832. Future minimum lease payments under the operating lease are as follows:

Year Ending March 31,

2013	$	49,160

The Company rents office space for its satellite training center in Hong Kong. The leased space is partially owned by Wendy Qin, a director of EFT (HK) Ltd. and the sister of Jack Qin, the Company’s president. The lease expires on March 31, 2015, with a monthly rental of $30,900. Future minimum lease payments under the operating lease are as follows:

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

	Year Ending March 31,

	2013				3,600

Total rent expenses for the six months ended September 30, 2012 and 2011, were $306,423 and $314,346, respectively, of which related party lease expenses were $185,567 and $188,946, respectively.

Employment Agreements

Jack Jie Qin

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

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

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

Pyng Soon

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

During the period of this agreement, the Company will pay Mr. Soon an annual base salary of $148,830 per year. Mr. Soon is also eligible to receive an annual bonus pursuant to the executive bonus scale in effect for executive employees of the Company.

Consultancy Agreement – related party

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

Purchase obligation

The Company’s wholly owned subsidiary, EFT Investment Co. Ltd, has entered into agreements to purchase an office building located in Taipei, Taiwan. The office building is under construction and will be completed by the end of 2013. The total purchase price for the office building is NTD7.1 billion, equivalent to approximately $238.1 million.

Pursuant to the terms of these agreements, the Company was obliged to pay the remaining twelve (12) outstanding installments with various amounts due over the next twenty-four (24) months until the completion of the building project. The latest payment, in the amount of approximately $13 million, was due on April 20, 2012. However, this payment was suspended by the Company due to, among other things, the failure of the sellers to comply with certain conditions precedent applicable to the agreements. Each subsequent quarterly payment, starting from April 20, 2012, was approximately $4 million. Finally, the residual payment of approximately $167 million was due at the time of completion of the building.

If the Company breaches any provisions relating to the terms and method of payment stated in the agreement, the seller may confiscate an amount calculated as 15 percent of the total real estate price, approximately $36 million. If the amount to be confiscated exceeds the amount of the price already paid, it shall be limited to the amount of the price already paid and the parties may rescind the agreement. As of September 30, 2012, payment of NTD600 million, equivalent to approximately $20.8 million, has been made to the seller.

As discussed in Note 8, on June 15, 2012, EFT Investment received a letter (the “Meifu Letter”) from Meifu wherein Meifu served notice of termination (as of that date) of its contracts with EFT Investment for the purchase of the Taiwan Building and a purported forfeiture of EFT Investment’s deposit of approximately $17.1 million (the “Deposit”).

Note 18 – SEGMENT INFORMATION

The Company’s business is classified by management into three reportable segments: online, transportation and beverage. The online business reportable segment is an aggregation of the Company’s online operating segments, which are organized to sell the Company’s products to Affiliates through its website. The online business reportable segment derives revenue from the sales of nutritional products, personal care products and EFT-phones and access fees for its network platform. The transportation service reportable segment derives revenue from transport passengers and cargo between Taiwan and Mainland China through the Taiwan Strait. The beverage business reportable segment derives revenue and expenses from the bottled water factory in Baiquan, Heilongjiang Province, China.

Although substantially all of the Company’s revenue is generated from Mainland China, the Company is organizationally structured along business segments. The accounting policies of each of the Company’s operating segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.”

The following tables provide the business segment information as of and for the three months and six months ended September 30, 2012 and 2011. Income tax allocations have been determined based on statutory rates in the applicable business segment.

	Three months ended September 30, 2012
		Online business			Transportation business			Beverage business			Total
Sales revenues, net	$	580,755		$	-		$	-		$	580,755
Cost of goods sold		(127,184	)		(248,516	)		-			(375,700	)
Gross profit/(loss)		453,571			(248,516	)		-			205,055
Operating expenses:
Selling, general and administrative expenses		1,139,035			171,801			87,553			1,398,389
Inventory obsolescence		23,392			-			-			23,392
Royalty expenses		56,104			-			-			56,104
Total operating expenses		1,218,531			171,801			87,553			1,477,885
Net operating loss		(764,960	)		(420,317	)		(87,553	)		(1,272,830	)
Other income/(expense)		234,056			583,319			(848	)		816,527
Allocated income tax		(13,138	)		-			-			(13,138	)
Income/(loss) after income tax		(544,042	)		163,002			(88,401	)		(469,441	)

Total long-lived assets		241,041			5,828,367			1,239,209			7,308,617

Additions to long-lived assets		16,484			(10	)		-			16,474

	Three months ended September 30, 2011
		Online business			Transportation business			Beverage business			Total
Sales revenues, net	$	3,084,452		$	12		$	-		$	3,084,464
Cost of goods sold		(1,079,229	)		(262,834	)		-			(1,342,063	)
Gross profit/(loss)		2,005,223			(262,822	)		-			1,742,401
Operating expenses:
Selling, general and administrative expenses		1,326,966			448,566			117,730			1,893,262
Marketing expenses		66,554			-			-			66,554
Royalty expenses		442,476			-			-			442,476
Total operating expenses		1,835,996			448,566			117,730			2,402,292
Net operating income/(loss)		169,227			(711,388	)		(117,730	)		(659,891	)
Other income/(expenses)		137,186			(1,523,361	)		(1,110	)		(1,387,285	)
Income/(loss) after income tax		306,413			(2,234,749	)		(118,840	)		(2,047,176	)

Total long-lived assets		378,032			8,731,934			1,185,647			10,295,613

Additions to long-lived assets		25,542			-			33,262			58,804

	Six months ended September 30, 2012
		Online business			Transportation business			Beverage business			Total
Sales revenues, net	$	1,408,728		$	-		$	-		$	1,408,728
Cost of goods sold		(263,538	)		(503,078	)		-			(766,616	)
Gross profit		1,145,190			(503,078	)		-			642,112
Operating expenses:
Selling, general and administrative expenses		2,300,356			380,110			164,851			2,845,317
Inventory obsolescence		707,079			-			-			707,079
Royalty expenses		115,156			-			-			115,156
Total operating expenses		3,122,591			380,110			164,851			3,667,552
Net operating loss		(1,977,401	)		(883,188	)		(164,851	)		(3,025,440	)
Other income		304,751			495,656			768			801,175
Allocated income tax		(13,138	)		-			-			(13,138	)
Income/(loss) after income tax		(1,685,788	)		(387,532	)		(164,083	)		(2,237,403

Total long-lived assets		241,041			5,828,367			1,239,209			7,308,617

Additions to long-lived assets		45,691			6,099			6,164			57,954

	Six months ended September 30, 2011
		Online business			Transportation business			Beverage business			Total
Sales revenues, net	$	13,606,556		$	1,024		$	-		$	13,607,580
Cost of goods sold		(2,900,787	)		(554,307	)		-			(3,455,094	)
Gross profit		10,705,769			(553,283	)		-			10,152,486
Operating expenses:
Selling, general and administrative expenses		2,860,003			825,688			189,682			3,875,373
Marketing expenses		107,995			-			-			107,995
Royalty expenses		714,401			-			-			714,401
Total operating expenses		3,682,399			825,688			189,682			4,697,769
Net operating income/(loss)		7,023,370			(1,378,971	)		(189,682	)		5,454,717
Other income/(loss)		423,438			(911,204	)		(1,560	)		(489,326	)
Income/(loss) after income tax		7,446,808			(2,290,175	)		(191,242	)		4,965,391

Total long-lived assets		378,032			8,731,934			1,185,647			10,295,613

Additions to long-lived assets		28,757			-			49,189			77,946

Note 19 – LITIGATION

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

Excalibur purchased the OceanLaLa from Ezone Capital Co. Ltd., prior to its acquisition by the Company. The last payment of EURO2,00,000 equivalent to approximately $2,531,646, was withheld by Excalibur since Excalibur believed that special tooling was not delivered at the time of sale and that an Ezone’s director did not act in good faith and was involved in self-dealing.

EFT Investment Co. Ltd. filed a lawsuit against Jiao Ren-Ho, former chairman of Excalibur, in the Taiwan Shihlin District Prosecutors office on February 12, 2010. EFT Investment Co. Ltd. alleges, among other things, that Jiao Ren-Ho committed the offences of capital forging, fraud, breach of trust, and document fabrication. The final resolution of this case is still pending.

EFT Investment Co. Ltd. filed a lawsuit against Chang Hui-Ying, Excalibur’s former accountant, in the Taiwan Shihlin District Prosecutors office in March 2010. The claims of EFT Investment Co. Ltd. against Chang Hui-Ying are based upon the audit of Excalibur’s financial statements by Chang Hui-Ying. EFT Investment Co. Ltd. alleges, among other things, that Chang Hui-Ying committed the offences of capital forging, fraud, breach of trust, and document fabrication. The final resolution of this case is still pending.

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

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

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

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

On August 18, 2010, Excalibur received a statement of claim, equivalent to a complaint in the United States, that was filed in the Taichung District Court, Taiwan, by Ezone Capital Co., Ltd., demanding approximately 2,000,000 Euros, equivalent to approximately $2,600,000, for the unpaid balance of the purchase price of the OceanLaLa (see Note 13). Excalibur has denied the claims of Ezone on the basis that the OceanLaLa was defective, unseaworthy, and not fit for its intended purpose. Excalibur has also filed a counterclaim against Ezone seeking a full refund of all amounts paid for the OceanLaLa, as well as reimbursement for amounts incurred on maintenance and repairs. The case proceeding has concluded and is awaiting disposition by the court.

On October 14, 2011, the Company initiated a complaint in the Superior Court of California, County of Los Angeles, for damages against Man Kwok So, former member of the Board of Directors and chief financial officer of the Company, for allegations including, but not limited to, fraud, defamation, breach of fiduciary duty and conversion. The Company sought compensatory damages in the amount of US$33,933.60 and full relinquishment of Mr. So’s 300,000 shares of EFT stock. On August 22, 2012, the Los Angeles Superior Court in California granted a default judgment against Tony Kwok So for $47,566.90. In addition, Tony Kwok So was ordered to permanently relinquish and lose any right to those 300,000 shares, which therefore reverted to EFT.

In 2009, EFT’s subsidiary, Heilongjiang Tianquan Manor Soda Drinks Co. Ltd., engaged a general contractor (the “Contractor”), to construct a water manufacturing plant (the “Plant”) for RMB4,758,600 (US$755,000). Upon completion, EFT inspected the Plant and found several material construction defects, including, but not limited to, the fact that the Contractor used inferior construction material, inconsistent construction plans and substandard insulation material. As a result, in 2010, EFT conditioned its final construction payment to the Contractor in the amount of RMB698,896 (US$110,000) on the rectification of all construction defects. On March 22, 2012, the Contractor brought a case against EFT in Baiquan People’s Court in Helongjiang Province seeking approximately RMB1,912,000 of purported outstanding payments under the contract and interest thereon. The case is awaiting trial.

Note 20 - SUBSEQUENT EVENTS

In relation to the Taiwan Building discussed in Note 8, on October 10, 2012, EFT Investment received a letter from Transglobe wherein Transglobe served a “notice of termination” (as of that date) of its contracts with EFT Investment for the purchase of the Taiwan Building and a purported forfeiture of EFT Investment’s deposit of approximately $3.7 million (the “Deposit”). Subsequently, on November 7, 2012, EFT Investment's local counsel issued a letter to Meifu and Transglobe alleging fraud and misrepresentation by Meifu and Transglobe during the course of the transactions. EFT Investment requested Meifu and Trasnglobe to settle the issue with the Company within seven days. See Note 8 to these consolidated financial statements for further information.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Products

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

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

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

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

Manufacturing

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

In addition, the Company has constructed a factory and water plant to produce bottled water in Baiquan, Heilongjiang Province, China, which is expected to start production by the first quarter of the 2013 calendar year.

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

Sales

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

As of October 31, 2012, the Company had 1,250,317 registered Affiliates, most of which were located in China and Hong Kong. For the six months ended September 30, 2012, the Company did not have any sales activities in the United States. None of the Company’s Affiliates account for a significant portion of the Company’s business.

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

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

Transportation business

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

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

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

EFT-Phone and ToByTo reward program

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

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

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

Starting from December 2010, the Company introduced some EFT-Phone reward programs to its Affiliates. For example, upon joining a $3,000 program, each Affiliate must pay $3,000 as a non-refundable deposit. When an Affiliate sponsors one new Affiliate, the Company will reward the first Affiliate with a $1,500 instant sponsor bonus. When the first Affiliate sponsors at least two new Affiliates, and those two new Affiliates each also sponsor two new Affiliates, the first Affiliate will have completed the first cycle of the program. The Company would then reward the first Affiliate with an additional $1,500 bonus and deliver an EFT-phone and an e-pad for the cost of $1.

After the completion of the first cycle, each Affiliate will enter into the matrix of the second cycle. Upon completion of the second cycle, the Company will reward the first Affiliate with $3,000. For each subsequent cycle thereafter within the matrix, each Affiliate will need to sponsor a new Affiliate in each cycle in order to qualify for the reward.

On April 1, 2012, the Company assigned network access rights to ToByTo Limited (“ToByTo”), a third-party company. The network access rights to ToByTo Limited include the right to access EFT’s Affiliate database for ToByTo’s marketing campaign, and provides access to EFT’s emoney system to facilitate their sales activities. ToByTo Limited, in return, will compensate EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the ToByTo Limited e-phone program each time (but not less than $300 per Affiliate).

eZGT Travel Program

In May 2011, the Company introduced to its Affiliates a series of travel programs attracting Affiliates to enjoy the benefits of travelling internationally. To participate in the Traveler programs, one must initially make a non-refundable deposit according to the programs’ requirements. When the Affiliate completes a cycle of the program he joined, he will receive a bonus reward and the Affiliate only needs to pay $1 for his or her own trip. The reward system of the travel program is similar to the ToByTo reward program.

On April 1, 2012, the Company assigned network access rights to eZGT Limited, a third party. The network access rights to eZGT Limited include the right to access EFT’s Affiliate database for eZGT’s marketing campaign, and provides access to EFT’s emoney system to facilitate their sales activities. eZGT Limited, in return, will compensate EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the $300 and $3,000 travel programs. However, for Affiliates who enter the $800 and $8,000 travel programs, eZGT will only pay access fees in the amount of $30 and $300, respectively.

Market Environment

The nutritional supplement and cosmetic e-business markets have and continue to become increasingly competitive and are rapidly evolving. Barriers to entry are minimal and current and new competitors can launch new websites at a relatively low cost. Many competitors in this area have greater financial, technical and marketing resources than the Company does. Continued advancement in technology and increasing access to that technology is paving the way for growth in direct marketing. The Company also faces competition for consumers from retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources than the Company has. Notwithstanding the foregoing, the Company believes that it is well-positioned within the Asian consumer market with its current plan of supplying U.S. merchandise brands to consumers and that its exposure to both the Asian and American cultures gives it a competitive advantage. There can be no assurance that the Company will maintain its competitive edge or that the Company will continue to provide solely U.S.-made merchandise.

The Company’s products are sensitive to business and personal discretionary spending levels and tend to decline or grow more slowly during economic downturns, including downturns in any of the Company’s major markets. The current worldwide downturn is expected to adversely affect the Company’s sales and liquidity for the foreseeable future. Although the Company has mitigated decreases in sales by lowering its levels of inventory to preserve cash on hand, the Company does not know when the downturn will subside and when consumer spending will increase from its current depressed levels. Even if consumer spending increases, the Company is not sure when consumer spending will increase for its products, which will affect its liquidity.

The global economy is currently undergoing a period of unprecedented volatility, and the future economic environment may continue to be less favorable than that of recent years. This has led, and could further lead, to reduced consumer spending, and which may affect adversely spending on nutritional and beauty products and other discretionary items, such as the Company’s products. In addition, reduced consumer spending may force the Company and its competitors to lower prices. These conditions may adversely affect the Company’s revenues and profits. In addition, the Company expects future operations to be affected by ToByTo’s marketing and distribution of EFT Phones, eZGT’s marketing of the travel program and the Company’s water bottling operations.

Results of Operations

Comparison for the Three Months Ended September 30, 2012 and 2011

The following sets forth certain components of the Company’s consolidated statements of operations information for the three months ended September 30, 2012 and 2011.

(All amounts, other than percentages, in thousands of U.S. dollars)

	THREE MONTHS ENDED 9/30/12			THREE MONTHS ENDED 9/30/11
Item	In Thousands			In Thousands			Amount of Change			% of Change
Sales revenues, net	$	489		$	2,722		$	(2,233	)		-82	%
Shipping charges		109			362			(253	)		-70	%
Access fees		(16	)		-			(16	)		NM
Cost of goods sold		127			722			(595	)		-82	%
Shipping costs		-			357			(357	)		-100	%
Operating costs – Excalibur		249			263			(14	)		-5	%
Gross profit		205			1,742			(1,537	)		-88	%
Selling, general and administrative expenses		1,398			1,893			(495	)		-26	%
Royalty expenses		56			442			(386	)		-87	%
Interest income		209			112			97			87	%
Foreign exchange(gain)/loss		584			(1,524	)		2,108			138	%
Net income/(loss) attributable to EFT Holdings, Inc.		(351	)		(1,647	)		1,296			79	%

*NM - not meaningful

Sales revenue, net

Sales revenues, net, significantly decreased to approximately $489,000 for the three months ended September 30, 2012 as compared to approximately $2,722,000 for the three months ended September 30, 2011. Effective April 2011, the Company increased its cost to become an Affiliate from $300 to $600. As a result, sales demand from Affiliates has dropped significantly. Gross sales of products dropped significantly from approximately $3,881,000 to $1,101,000, mainly due to product sales orders dropping from $2.0 million to $1.2 million as compared to the same period last year, and the Company recognizing $1.8 million of revenue in the quarter ending September 30, 2011 for products ordered before March 31, 2011. This increase in sales prior to April 2011 was primarily due to Affiliates stocking up on products prior to the price increase. The Company is in the process of developing new product programs that it believes will improve upon the sluggish performance of the current programs. These new programs are expected to be launched during the third quarter of the current fiscal year.

Shipping charges

Shipping charges decreased to approximately $109,000 for the three months ended September 30, 2012 from approximately $362,000 for the three months ended September 30, 2011, mainly due to the $1.7 million reduction in gross sales.

Access fees

During the period, eZGT negotiated with the Company to lower the access fee for Affiliates who enter the $800 and $8,000 travel programs. eZGT will only pay access fees in the amount of $30 and $300, respectively for Affiliates who join the $800 and $8,000 travel programs. The change was retroactive to April 2012, resulting in a refund to eZGT during the period.

Cost of goods sold

Cost of goods sold decreased to approximately $127,000 for the three months ended September 30, 2012 from $722,000 for the three months ended September 30, 2011, mainly due to a decrease in gross sales of products. Cost of goods sold consists of merchandise purchased from vendors. Gross sales of products declined significantly from approximately $3,881,000 to $1,101,000, or 72%. Similarly, cost of sales of products declined by 81% from approximately $656,000 to $126,000.

Shipping costs

No shipping costs were incurred for the three months ended September 30, 2012 compared to approximately $357,000 for the three months ended September 30, 2011, as there was no need to transfer stock to the logistics facility in China. Shipping costs consist of freight charges from the U.S. warehouse and/or vendors to the Company’s logistics facility in China.

Operating costs – Excalibur

Operating costs – Excalibur decreased to approximately $249,000 for the three months ended September 30, 2012 as compared to approximately $263,000 for the three months ended September 30, 2011. As a result of the damage to the OceanLaLa, the vessel has temporarily been taken out of service. The Company continues to minimize the cost associated with maintaining the ship and currently maintains a minimal crew on the vessel.

Gross profit

Gross profit decreased to approximately $205,000 for the three months ended September 30, 2012 compared to approximately $1,742,000 for the three months ended September 30, 2011. Gross profit, as a percentage of total revenue, was 35% during this period compared with 56% for the three months ended September 30, 2011. The decrease in gross profit was mainly due to a decrease in gross sales of $2.7 million as compared to the same period last year.

The Company’s revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, (“SAB104”), ASC Topic 605, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) and other applicable revenue recognition guidance and interpretations. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Transportation income is generated from transporting passengers and cargo and is recognized at the time when passengers and cargo are conveyed to the destination port. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Commissions paid to the Company’s Affiliates are considered to be a reduction of the selling prices of its products, and are recorded as a reduction of revenue.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to approximately $1,398,000 for the three months ended September 30, 2012 compared to $1,893,000 for the three months ended September 30, 2011, mainly due to a decrease in legal fees associated with legal cases involving Excalibur and EFT Investment Ltd. and a reduction of fees charged by a service provider in the United States. Legal fees decreased to $56,407 for the three months ended September 30, 2012, compared to $298,182 for the three months ended September 30, 2011. The U.S. service provider decreased its fees to $111,726 for the three months ended September 30, 2012 as compared to $243,570 for the three months ended September 30, 2011.

Royalty expenses- related party

Royalty expenses decreased to approximately $56,000 for the three months ended September 30, 2012 as compared to approximately $442,000 for the three months ended September 30, 2011 mainly due to a decrease in gross sales during the year. Royalty payable to EFT Assets is equal to a percentage of the Company’s gross sales based on certain threshold criteria. See Note 7 to the consolidated financial statements in this Quarterly Report for further information.

Interest income

Interest income increased to approximately $209,000 for the three months ended September 30, 2012 as compared to approximately $112,000 for the three months ended September 30, 2011. Interest income increased due to an increase of investments in corporate bonds as compared to the prior period. The increase in interest income was due to the investment of funds received from the short-term loan recorded during the first quarter of the fiscal year. Interest income from the investment of the funds from the short-term loan was approximately $100,000.

Foreign exchange gain

Foreign exchange gain increased to $584,000 for the three months ended September 30, 2012 as compared to a loss of $1,524,000 for the three months ended September 30, 2011. Foreign exchange gain increased because of fluctuations in foreign exchange rates, with the NTD depreciating against the U.S. Dollar for the Company’s USD borrowings, which are planned and anticipated to be settled in the foreseeable future.

Comparison for the Six Months Ended September 30, 2012 and 2011

The following sets forth certain components of the Company’s consolidated statements of operations information for the six months ended September 30, 2012 and 2011.

(All amounts, other than percentages, in thousands of U.S. dollars)

	SIX MONTHS ENDED 9/30/12			SIX MONTHS ENDED 9/30/11
Item	In Thousands			In Thousands			Amount of Change			% of Change
Sales revenues, net	$	1,091		$	12,243		$	(11,152	)		-91	%
Shipping charges		227			1,364			(1,137	)		-83	%
Access fees		91			-			91			NM
Cost of goods sold		263			1,913			(1,650	)		-86	%
Shipping costs		-			988			(988	)		-100	%
Operating costs – Excalibur		503			554			(51	)		-9	%
Gross profit		642			10,152			(9,510	)		-94	%
Selling, general and administrative expenses		2,845			3,875			(1,030	)		-27	%
Inventory obsolescence		707			-			707			NM
Royalty expenses		115			714			(599	)		-84	%
Interest income		302			297			5			2	%
Foreign exchange (gain)/loss		509			(912	)		1,421			156	%
Net income/(loss) attributable to EFT Holdings, Inc.		(2,015	)		5,695			(7,710	)		-135	%

*NM - not meaningful

Sales revenue, net

Sales revenues, net, significantly decreased to approximately $1,091,000 for the six months ended September 30, 2012 as compared to approximately $12,243,000 for the six months ended September 30, 2011. Effective April 2011, the Company increased its cost to become an Affiliate from $300 to $600. As a result, sales demand from Affiliates has dropped significantly since the increase. Gross sales of products dropped significantly from $13,855,407 to $2,266,999, mainly due to the Company recognizing $10 million of revenue in the quarter ended September 30, 2011 for products ordered before March 31, 2011. This increase in sales prior to April 2011 was primarily due to Affiliates stocking up on products prior to the price increase. In addition, products’ sales orders dropped from $4.2 million to $2.3 million as compared to the same period last year. The Company is in the process of developing new product programs that it believes will improve upon the sluggish performance of the current programs. These new programs are expected to be launched during the third quarter of the current fiscal year.

Shipping charges

Shipping charges decreased to approximately $227,000 for the six months period ended September 30, 2012 from approximately $1,364,000 for the six months ended September 30, 2011 mainly due to the $11.6 million reduction in gross sales.

Access fees

On April 1, 2012, the Company assigned network access rights to eZGT Limited (eZGT) and ToByTo Limited (ToByTo). These network access rights include the right to access EFT’s affiliate database for those companies’ marketing campaigns, and access to EFT’s money system to facilitate those companies’ sales activities. ToByTo compensates EFT by paying access fees in an amount equal to 10% of enrollment fee of every Affiliate who enters the respective programs each time an Affiliate is added. eZGT compensates EFT by paying access fees in an amount equal to 10% of enrollment fee of every Affiliate who enters the $300 and $3,000 travel programs. However, for Affiliates who enter the $800 and $8,000 travel programs, eZGT will only pay access fees in the amount of $30 and $300, respectively.

Cost of goods sold

Cost of goods sold decreased to approximately $263,000 for the six months ended September 30, 2012 from $1,913,000 for the six months ended September 30, 2011, mainly due to a decrease in gross sales of products. Cost of goods sold consists of merchandise purchased from vendors. Gross sales of products declined significantly by 84% from $13,855,407 to $2,266,999. Similarly, cost of sales of products declined by 85% from $1,741,787 to $255,634.

Shipping costs

Shipping costs decreased to $418 for the six months period ended September 30, 2012 from approximately $988,000 for the six months period ended September 30, 2011, as less stock needed to be transferred to the logistics facility in China. Shipping costs consist of freight charges from the U.S. warehouse and/or vendors to the Company’s logistics facility in China.

Operating costs – Excalibur

Operating costs – Excalibur decreased to approximately $503,000 for the six months ended September 30, 2012 as compared to approximately $554,000 for the six months ended September 30, 2011. As a result of the damage to the OceanLaLa, the vessel has temporarily been taken out of service. The Company continues to minimize the cost associated with maintaining the ship and currently maintains a minimal crew on the vessel.

Gross profit

Gross profit decreased to approximately $642,000 for the six months ended September 30, 2012 compared to approximately $10,152,000 for the six months ended September 30, 2011. Gross profit, as a percentage of total revenue, was 46% during this period compared with 75% for the six months ended September 30, 2011. The decrease in gross profit was mainly due to a decrease in gross sales of $11.6 million as compared to the same period last year.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to approximately $2,845,000 for the six months ended September 30, 2012 compared to $3,875,000 for the six months ended September 30, 2011, mainly due to a decrease in legal fees associated with legal cases involving Excalibur and EFT Investment Ltd., a reduction of fees charged by a service provider in the United States and reduction of fees paid to consultants. Legal fees decreased to $88,615 for the six months ended September 30, 2012, compared to $617,050 for the six months ended September 30, 2011. The U.S. service provider decreased its fees to $226,011 for the six months ended September 30, 2012 as compared to $513,178 for the six months ended September 30, 2011. Fees paid to consultants decreased to $204,669 for the six months ended September 30, 2012, compared to $299,200 for the six months ended September 30, 2011.

Inventory obsolescence

Inventory obsolescence increased to approximately $707,000 for the six months ended September 30, 2012 as compared to nil for the six months ended September 30, 2011, mainly due to an increase in expired products. The management reviewed inventory levels in each country by comparing with recent demand requirements and the shelf life of the various products, and provided $616,000 for estimated obsolescence and recognized $91,000 of loss for products that exceeded their shelf life. The Company is considering the sale of some of its overstocked items and items nearing obsolescence at significantly reduced prices to a third party in an ongoing effort to maintain acceptable inventory levels. The Company also believes that the new product programs currently in development will increase sales significantly in the coming months, which will reduce current inventory levels further.

Royalty expenses - related party

Royalty expenses decreased to approximately $115,000 for the six months ended September 30, 2012 as compared to approximately $714,000 for the six months ended September 30, 2011, mainly due to a decrease in gross sales during the year. Royalty payable to EFT Assets is equal to a percentage of the Company’s gross sales based on certain threshold criteria. See Note 7 to the consolidated financial statements in this Quarterly Report for further information.

Interest income

Interest income increased to approximately $302,000 for the six months ended September 30, 2012 as compared to approximately $297,000 for the six months ended September 30, 2011. Interest income decreased due to an increase of investments in corporate bonds as compared to the prior period. The increase in interest income was due to the investment of funds received from the short-term loan recorded during the first quarter of the fiscal year. Interest income from the investment of the funds from the short-term loan was approximately $100,000.

Foreign exchange gain/(loss)

Foreign exchange gain increased to $509,000 for the six months ended September 30, 2012 as compared to a loss of $912,000 for the six months ended September 30, 2011. Foreign exchange gain increased because of fluctuations in foreign exchange rates, with the NTD depreciating against the U.S. Dollar for the Company’s USD borrowings, which are planned and anticipated to be settled in the foreseeable future.

Capital Resources and Liquidity

The following table reflects the Company’s sources/ (uses) of cash for the six months ended September 30, 2012 and 2011.

	Six Months Ended September 30,
	2012			2011
Net cash used in operating activities	$	(1,059,360	)	$	(7,148,747	)
Net cash used in investing activities		(7,222,994	)		(15,606,843	)
Net cash provided by financing activities		7,937,289			-
Effect of exchange rate changes on cash		(490,641	)		701,362
Net decrease in cash	$	(835,706	)	$	(22,054,228	)

The cash and cash equivalents and securities available for sale are the Company’s primary sources of liquidity. The Company believes its existing cash and cash equivalents will be sufficient to maintain its operations at the present level for at least twelve months.

Operating activities

For the six months ended September 30, 2012, net cash used in operating activities was $1,059,360. This was primarily due to a net loss of $2,237,403 adjusted by non-cash related expenses that included depreciation of $563,015, provision for inventory obsolescence of $707,079, and loss on disposal of fixed assets of $12,636, which were offset by a net increase in working capital items of $27,867.

For the six months ended September 30, 2011, the Company recorded a profit of $5,030,291, yet used $7,148,747 in its operating activities. The primary reason for this was the fact that the Company recognized approximately $10,000,000 of unearned revenue during the period but the corresponding cash had been received and recorded during the year ended March 31, 2011.

Investing activities

Net cash used in investing activities for the period ended September 30, 2012 was $7,222,994, primarily attributable to the purchase of $57,954 of property and equipment and the purchase of $17,285,165 of corporate bonds, which were partially offset by proceeds from corporate bonds of $10,120,125. In order to provide additional cash funds for payments related to the Taiwan building, the Company borrowed a loan of approximately $7.9 million in May 2012, bearing an interest rate of 3% per annum and repayable by October 31, 2012. As the payments due to Meifu and Transglobe were suspended by the Company, the $7.9 million proceeds of the loan were invested in corporate bonds in order to generate interest income to offset interest expense related to the loan.

Net cash used in investing activities for the period ended September 30, 2011 was $15,606,843, primarily attributable to initial payment of $20,632,737 for the investment in the office building in Taiwan, the purchase of $683,623 of securities available for sale and the use of $77,946 of capital expenditures on construction in progress, partially offset by proceeds from corporate bonds of $5,798,748.

Financing activities

Net cash provided by financing activities for the period ended September 30, 2012 was $7,937,289, primarily provided by a short-term loan received from an outside party originally scheduled for progressive payment for the investment property in Taiwan. For more information, please see Note 14 to the consolidated financial statements in this Report.

The Company did not use or receive any cash from financing activities during the six months ended September 30, 2011.

Balance Sheet Items

Material changes in the Company’s balance sheet items between September 30, 2012 and March 31, 2012 are discussed below:

Securities Available for Sale

Securities available for sale increased to $17,575,921 as of September 30, 2012 as compared to $10,082,372 as of March 31, 2012, as the Company transferred more funds to invest in corporate bonds to earn interest income. The total available for sale securities at September 30, 2012 includes approximately $8 million of funds received by the Company as a result of a short-term loan. See Note 14 to the consolidated financial statements in this Quarterly Report for further information.

Property and Equipment, net

Property and equipment, net decreased to $7,308,617 as of September 30, 2012 as compared to $7,824,241 as of March 31, 2012, resulting from depreciation expenses recorded during the current period.

Investment in developments in progress

The Company’s wholly-owned subsidiary, EFT Investment Co. Ltd., entered into two tri-party agreements with the seller of the office building to replace the original contract signed by Mr. Jack Qin as agent on May 2, 2011 to purchase an office building located in Taipei, Taiwan, which is under construction and will be completed by the end of 2013. As of September 30, 2012, deposits approximating $20.8 million have been made to the sellers. Please see Notes 8 and 20 to the financial statements included as part of this Report for more information.

Accounts Payable

Accounts payable increased to $2,364,676 as of September 30, 2012 as compared to $2,289,648 as of March 31, 2012, resulting from $1,261,431 of royalty expenses that were not paid to EFT Assets by September 30, 2012. Additional information concerning EFT Assets is included in Note 7 (Loans to related parties and related party transactions).

Commission Payable

Commission payable decreased to $4,147,512 as of September 30, 2012 as compared to $4,351,420 as of March 31, 2012 due to lower commissions earned by Affiliates.

Unearned Revenue

Unearned revenue decreased to $3,427,056 as of September 30, 2012 as compared to $3,436,506 as of March 31, 2012. The recording of unearned revenue results from temporary delays in the delivery of products or services to Affiliates. In addition, $1,289,450 of unearned revenue relates to Affiliates who have enrolled in ToByTo Reward programs and have not yet qualified to receive the Company’s rewards.

Non-controlling interest

This item represents the interest in Excalibur and Digital owned by others. Non-controlling interest liabilities increased because both Excalibur and Digital recorded losses during the year.

Between January and August 2008, the Company sold 14,890,040 Units to non-U.S. residents at a price of $3.80 per Unit. The Units were sold pursuant to the exemption provided by Regulation S under the Securities Act of 1933. Each Unit consisted of one share of the Company’s common stock and one warrant. Each warrant allowed the holder to purchase one share of the Company’s common stock at a price of $3.80 per share at any time prior to November 30, 2010.

The Company received $52,848,489 of proceeds from the private placement and used $19,193,000 from the sale of the Units to purchase its 48.81% interest in Excalibur International Marine Corporation.

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

Since July 2008, the Company has made loans to Excalibur International Marine Corporation. The loans were primarily used by Excalibur to acquire its vessel, the OceanLaLa, and to fund operating costs. As of September 30, 2012, the Company had the following outstanding loans to Excalibur. Because the Company consolidates Excalibur, these loans are not included in its consolidated financial statements.


Principal Amount		Interest Rate		Due Date
$	1,564,717	0	%	Due on demand
$	47,000	8	%	November 17, 2012
$	90,000	8	%	November 24, 2012
$	2,500,000	8	%	November 25, 2012
$	60,000	8	%	December 15, 2012
$	51,600	8	%	December 23, 2012
$	330,000	8	%	January 5, 2013
$	100,000	8	%	January 7, 2013
$	75,000	8	%	January 20, 2013
$	100,000	8	%	January 25, 2013
$	120,000	8	%	February 1, 2013
$	160,000	8	%	February 11, 2013
$	250,000	8	%	February 18, 2013
$	45,000	8	%	February 28, 2013
$	140,000	8	%	March 10, 2013
$	17,000	8	%	March 18, 2013
$	130,000	8	%	April 3, 2013
$	65,000	8	%	April 13, 2013
$	75,000	8	%	April 27, 2013
$	512,000	8	%	April 30, 2013
$	34,000	8	%	May 4, 2013
$	70,000	8	%	May 19, 2013
$	260,000	8	%	June 5, 2013
$	150,000	8	%	June 28, 2013
$	462,000	8	%	July 6, 2013
$	100,000	8	%	July 28, 2013
$	100,000	8	%	August 20, 2013
$	250,000	8	%	September 1, 2013
$	70,000	8	%	October 11, 2013
$	200,000	8	%	October 12, 2013
$	1,110,000	8	%	November 13, 2013
$	9,238,317

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

Since February 2010, the Company has started to buy securities available for sale to earn interest, and has invested $17.5 million in such securities at September 30, 2012.

From May 2011, the Company started to invest in a real estate project in Taiwan. As of September 30, 2012, payment of NTD600 million, approximately $20.8 million, has been made to the property developers.

The unused cash and cash equivalents of $3.5 million at September 30, 2012 will be used in the Company’s daily operations. The Company has no unused lines of credit or other borrowing facilities and believes that its ongoing operations generate sufficient cash to meet its liquidity requirements.

Future Contractual Obligations

	Total		2013		2014		2015		Thereafter
Lease payments	$	980,595	$	238,327	$	371,134	$	371,134	$	-

See Note 17 of the Notes to the Consolidated Financial Statements contained in Item 1 for the Company’s future contractual obligations under the employment agreements with certain of the Company’s executive officers and the consultancy agreement with a related party.

Other than as disclosed above and except for the payment obligation to purchase an office building located in Taipei, Taiwan as disclosed in Item 1- Note 8, the Company does not anticipate any material capital requirements for the year ending March 31, 2013.

Commitments for capital expenditures

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

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

Off-Balance Sheet Arrangements

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

Significant Accounting Policies/Recent Accounting Pronouncements

See Item 1- Note 2 to the financial statements included as part of this report for a description of the Company’s significant accounting policies and recent accounting pronouncements which have, or potentially may have, a material impact on its financial statements.

Critical Accounting Policies and Estimates

During the six months ended September 30, 2012 the Company did not change any of its critical accounting policies or estimates.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.

Controls and Procedures.

(a)

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Jack Jie Qin and William E. Sluss, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2012, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Qin and William E. Sluss concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2012.

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

(b)

Changes in Internal Controls.

There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2012 that is reasonably likely to materially affect the Company’s internal control over financial reporting.

As of September 30, 2012, the Company has not fully remediate any of the material weaknesses disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012. Management is currently evaluating what steps, if any, can be taken in order to address these material weaknesses.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

See Note 19 to the financial statements included as part of this Report.

Item 1A.

Risk Factors.

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibits

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

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

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

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

101	The following materials from the EFT Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 14, 2012 formatted in Extensible Business Reporting Language (XBRL):*

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

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

SIGNATURES

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

		EFT HOLDINGS, INC.
		(Registrant)

Date: November 14, 2012	By:	/s/ Jack Jie Qin
		Jack Jie Qin
		Principal Executive Officer

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