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Item
1.
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Business
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Item
1A.
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Risk
Factors
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12
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Item
2.
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Financial
Information
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20
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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3.
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Properties
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4.
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Security
Ownership of Certain Beneficial Owners and Management
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5.
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Directors
and Executive Officers
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6.
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Executive
Compensation
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7.
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Certain
Relationships and Related Transactions, and Director
Independence
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8.
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Legal
Proceedings
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35
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9.
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Market
Price of and Dividends on the Registrant’s Common Equity and Related
Stockholder Matters
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10.
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Recent
Sales of Unregistered Securities
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11.
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Description
of Registrant’s Securities to be Registered
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12.
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Indemnification
of Directors and Officers
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13.
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Financial
Statements and Supplementary Data
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14.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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Financial
Statements and Exhibits
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39
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Signatures
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40
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ITEM
1. BUSINESS.
General
EFT
BioTech Holdings, Inc. is an E-Business company designed around the concept of
Business-to-Customer using the World Wide Web as our storefront and business
platform, with products lines in numerous different markets. By covering
several markets, we believe we can keep our sales diversified and active. We
believe that having only one single product line could possibly limit repeat
business from that customer to products only in that line.
We offer
over 22 different nutritional products, of which 21 are oral sprays, 18
different personal care products consisting of various beauty products; two
automotive products, an environmentally friendly house cleaner and flip top
portable drinking container which contains a filter to remove impurities from
the water.
We market
and sell our products through an internet platform which consists of us selling
our products directly to members of our Affiliate program (“Affiliates”) through
our website,
www.eftb.us
, for
personal use or resale directly to consumers. Although our products are
available for sale throughout the world, most of our Affiliates and consumers
are located in China and Hong Kong. Our main demographic are Asian
people between the ages of 20 to 50 years old who we believe are likely to order
the American merchandise brands advertised on our website.
The
contents of our website are not incorporated by reference herein.
Affiliates
can only join our program by being recommended by another Affiliate and by
submitting an application through our website. Once a member, an Affiliate
places an order and pays for the products purchased. We then ship the
products to the Affiliate who then is free to either use them or resell them to
other parties.
We also
pay the Affiliate a commission on products purchased by other Affiliates
introduced by the Affiliate to the Company. Affiliates are not required to buy
products, recruit others, attend meetings or report to us. Affiliate commissions
are issued in the form of a pay card. Commissions are credited in U.S. Dollars
and can be withdrawn in local currency at an ATM in the country of the
Affiliate. Commissions are credited in U.S. Dollars and can be
withdrawn in local currency at an automated teller machine (ATM) in the country
of the Affiliate. By using this method, we eliminate cumbersome
accounting chores such as issuing checks, reconciling bank statements and
keeping up with escheat laws. This method helps us to keep our accounting staff
smaller than it would be if we used a check payment method, thereby saving
operating expenses.
Many
consumers in Hong Kong and China do not have direct access to many American
merchandise brands. Our goal is to provide these consumers with access to
American merchandise brands by providing the means for such consumers to
overcome the cultural and language barriers that may be currently restricting
access to the purchase of many American products. We offer services that span
from marketing to delivery, thereby providing American merchants with access and
distribution to the Asian consumer markets. American companies are often
reluctant to commence operations in Asia due to cultural differences and
language barriers. Additionally, foreign companies generally need to make
substantial investments in market research to study foreign consumer behavior.
Similarly, language barriers make it difficult for companies to communicate
effectively and to create awareness of their products in the overseas market.
Asian consumers also face a language handicap when ordering merchandise directly
from the websites of American brand merchandisers, as the majority of these
websites are in English. We will act as a bridge over the internet between Asian
consumers and American merchandise brands. We do not have any contracts or
agreements with any American merchants to market our products at this
time.
Our
objective is to foster a high-quality customer experience that engages Asian
consumers into long-term customer relationships. We provide high-quality
customer service and a large selection of American branded/manufactured
products.
The
Company’s Common Stock is currently traded on the Pink OTC Markets Inc. (the
“Pink Sheets”) under the ticker symbol “EFTB.” Upon the effectiveness
of this Registration Statement on Form 10, Buckman, Buckman & Reid, Inc.
intends to file an application with FINRA for authorization to act as a market
maker of our common stock on the OTC Bulletin Board. Buckman, Buckman
& Reid, Inc. served as the placement agent of our Units in the Regulation S
Offering commenced on April 25, 2008 which expired on October 25, 2008 and which
is discussed below.
As of the
date of this Registration Statement, there are 75,983,205 shares of
Common Stock outstanding of the Company Stock, 52,600,000 of which
(approximately 69.2%) are beneficially held or controlled by the executive
officers and directors of the Company. As of the close of business on
December 9, 2008, the last sales price of our common stock was
$3.70.
Organizational
History
EFT
BioTech Holdings, Inc., (formerly HumWare Media Corporation, GRG, Inc.,
Ghiglieri Corporation, Karat Productions, Inc.) was incorporated in the state of
Nevada on March 19, 1992 (“EFT Holdings” or the “Company”).
On
November 7, 2007, HumWare Media Corporation changed its name to EFT BioTech
Holdings, Inc. and effected a reverse stock split of 20,000 shares of common
stock for 1 share of common stock, which resulted in a decrease in the total
amount of common shares then issued and outstanding.
On
November 18, 2007, the Company issued an aggregate of 53,300,000 shares of its
Common Stock in connection with a share exchange with EFT BioTech, Inc. (“EFT
BioTech”), a Nevada corporation formed on September 18, 2007, pursuant to which
the Company acquired 100% of the issued and outstanding shares of EFT BioTech in
consideration for 53,300,000 shares of the Company’s Common Stock, representing
87.01% of the Company’s capital stock on a fully-diluted basis.
Upon the
consummation of the merger, EFT BioTech became a wholly-owned subsidiary of EFT
Holdings. The Company is a holding company and conducts its business
through the operations of EFT BioTech and EFT BioTech’s wholly-owned subsidiary,
EFT Limited (BVI). EFT Limited (BVI) also has four wholly-owned
subsidiaries: EFT, Inc., Top Capital, Ltd. (BVI), EFT (HK), Ltd. and EFT
International Ltd. (BVI). Therefore, the information in this
Registration Statement concerning the Company’s business and operations pertains
to EFT Holdings and its subsidiaries. Terms such as “EFT,” “we,”
“us,” “our” and similar phrases pertain to EFT BioTech Holdings, Inc. and its
subsidiaries.
Below is
our corporate chart:
On July
18, 2008, the Company loaned $1,567,000 to Excalibur International Marine
Corporation (“Excalibur”), a shipping company located in Taiwan. The
loan was not evidenced by a written note, was not interest bearing and was due
upon demand.
On July
15, 2008, the Company signed a loan agreement with Excalibur to lend $19,193,000
(New Taiwan Dollar 582,452,000) expiring at the end of October 2008. The loan is
not interest bearing and secured by Excalibur’s vessel.
On
September 23, 2008, the Company signed a loan agreement with Excalibur to lend
$2,000,000 at interest rate of 3.75% per month with a term of no more than 60
days.
On
October 20, 2008, EFT Investment Co., Ltd. was formed as a
wholly-owned subsidiary of
EFT BioTech Holdings, Inc. EFT Investment Co., Ltd was formed
in Taiwan.
On
October 25, 2008, EFT Investment Co., Ltd., a wholly-owned subsidiary of EFT
BioTech Holdings, Inc. formed in Taiwan, completed the acquisition of 58,567,750
shares of common stock of Excalibur, representing approximately 49% shares of
issued and outstanding shares of Excalibur, for an aggregate purchase price of
USD $19,193,000.
On
November 14, 2008, all the amounts receivables from Excalibur were paid back in
full.
EFT, Inc.
leases and operates a 10,268 square foot fulfillment facility located in the
City of Industry, California. We have 20 employees who work in this
division. Top Capital (BVI) owns the Company’s
inventory.
Our sales
divisions are EFT (HK) Ltd and EFT International Ltd. We have 10
employees who work in these divisions.
Unless
otherwise noted, the information in this Registration Statement concerning the
Company’s business and operations pertains to EFT BioTech Holdings, Inc. and its
subsidiaries. Terms such as “EFT,” “we,” “us,” “our” and
similar phrases pertain to EFT BioTech Holdings, Inc and its
subsidiaries.
Regulation
S Private Placement
In March
2008, we commenced a private placement of up to ten million (10,000,000) Units,
exclusively to non-U.S. residents at a purchase price of $3.80 per Unit under
the exemption of the registration requirements of the Securities Act of 1933, as
amended, afforded the Company under Regulation S thereunder due to the fact that
offers and sales were only made to non US residents.
Each Unit
consists of one share of Common Stock and one Redeemable Common Stock Purchase
Warrant (the “Warrant”). Each Warrant is exercisable to purchase one
share of Common Stock at $3.80 per share until the second anniversary date of
the date of issuance. The Warrants are redeemable, on a pro rata basis, by the
Company at a purchase price of $0.0001 per share within 30 days from the 10
th
consecutive trading day that the closing sales price, or the average of the
closing bid and asked price in the event that the Company’s Common Stock trades
on the OTC or any public securities market within the U.S., of the Company’s
Common Stock is at least $11. Buckman, Buckman & Reid, Inc. acted at the
placement agent of the Units (“Buckman” or the “Placement Agent”).
The
private placement terminated on October 25, 2008. As of such date, the Company
has sold an aggregate of 14,890,040 Units for net proceeds of $56,582,152
consisting of a total of 14,890,040 shares of Common Stock and 14,890,040
Warrants. As of September 30, 2008, none of the warrant holders have exercised
their warrants.
As of
September 30, 2008, the Company has used $22,760,000 of the net proceeds of sale
of the Units for a loan. No Warrants have been exercised or
redeemed.
The table
below sets forth management’s currently planned allocation of the net proceeds
of the offering.
Proceeds
from Sale of Units
|
Category:
|
Amount
(USD$):
|
Percentage
of Net Proceeds:
|
Loan
|
$22,760,000
|
40%
|
Marketing
Development
|
20,000,000
|
35%
|
Business
Development
|
13,822,152
|
25%
|
TOTAL
|
$56,582,152
|
100%
|
The
allocation of the net proceeds of the Offering set forth above represents our
best estimate based upon our present plans and certain assumptions regarding
general economic and industry conditions and our future revenues and
expenditures. We reserve the right to reallocate these proceeds within the
above-mentioned categories or to other purposes if management believes it is in
our best interests. We will not however use any of the net proceeds to pay any
debt or other obligations owed to any party or management without the consent of
the Placement Agent.
Products
We
conduct our business in several markets. By covering several markets, we believe
we can keep our sales diversified and active. We believe that having only one
single product line could possibly limit repeat business from that customer to
products only in that line.
Nutritional
Products
Our
sprays are non-pharmaceutical nutritional products that are introduced into the
body through a very fine mist sprayed directly into the mouth. The spray
containers used to deliver our nutritional products are small, compact and easy
to carry. A single dose from the spray container provides a fine mist that can
be better absorbed by the body. The spray system maximizes the effectiveness of
the dosage and reduces waste of the product. Each container holds approximately
a one month supply.
Our
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 spray product has been formulated to address specific need, symptom
and condition. We make no claims as to the products curing any medical
condition, or preventing any medical ailment. Our products have not been tested
and/or approved by the FDA, as with all non-prescription products.
We
currently offer 22 different nutritional products for various purposes. Other
than the Rooibos Tea, all of the following are ingestible spray
products:
|
4.
|
Deer
Antler Velvet Plus;
|
|
18.
|
Super
Hydro-Oxy (Large);
|
Personal Care
Products
We
currently offer the following 18 different Personal Care
products;
|
1.
|
Bust
Cream:
An herbal cream containing natural ingredients for the
purpose of stimulating the development of the breast tissue and tightening
and firming of the breast.
|
|
2.
|
Daily
Eye Treatment:
A soothing and hydrating eye cream for
the purpose of reducing puffiness, fine lines and the effects of stress
and fatigue. It contains collagen, elastin, and camellia leaf along
with glycolic acid.
|
|
3.
|
Lip
gloss:
A long lasting moisturizing
lipstick.
|
|
4.
|
Pressed
Mineral Powder:
A multi-functional face power containing zinc,
vitamins A and E along with green tea
extract.
|
|
5.
|
Fountain
of Youth:
A daily skin care regimen including a synergistic blend
of 10 Oriental Herbs for the purpose of skin brightening, cleaning, and
anti-wrinkle effects. Ingredients include Wild Strawberry Fruit, Chinese
Matrimony Vine, Licorice, Maesil (Ume) Fruit, Camellia Tea, Black Rice,
Cucumber Fruit, Cudrania Tricuspidata Bark, Uuron-cha Ekisu and Pear
Fruit.
|
|
6.
|
Gold
Cream:
A topical cream containing Colloidal Gold for the purpose of
relieving pain associated with arthritis, stiff and swollen joints,
sprains, strains, muscle spasms, bursitis and
tendonitis.
|
|
7.
|
Instant
Whitening Cream:
A cream for the purpose of brightening overall
complexion, lightening age spots, liver spots and sun damaged
skin.
|
|
8.
|
Lifting
Masque:
A 20
minute
masque for the
purpose of reducing the visible signs of aging while lifting, tightening,
and refining the pores of the skin.
|
|
9.
|
Magik
Glove:
A non-greasy lotion for hand protection against the damaging
effects of dirt, grease, grime, multi-component paints, oils, solvents,
adhesives, chemicals, resins, corrosives, irritants, inks, dyes, toner,
toxins and many other substances.
|
|
10.
|
Nia
3 Plus 1 Lash & Line:
Contains
mascara and eyeliner package containing two shades in one sleek tube- dark
brown mascara and navy blue mascara. The second tube features black
mascara and black eyeliner. These shades will enhance any eye shape
or
color.
|
|
11.
|
Nia
Concealer:
A light colored concealer for the purpose of providing
coverage for any skin imperfection as in darkness around the eyes,
blemishes and to even out skin
tones.
|
|
12.
|
Nia
Eye Color:
A palette of four color-coordinated eye shadows: Pearl
grey, Soft pink, Cranberry and
Charcoal.
|
|
13.
|
Nia
Face and Body Powder:
A jar containing face and body powder and
powder puff.
|
|
14.
|
Nia
Lip Magic:
A lip gloss. Colors include Celebration Red with Pink
shimmer and Plum Raisin with Peach
shimmer.
|
|
15.
|
Progesterone
Cream:
A non-pharmaceutical cream containing natural ingredients
for menopausal and postmenopausal
women.
|
|
16.
|
Rooibos
Tea Cream:
A skin cream containing Alpha-Hydroxy acids,
antioxidant, Vitamin B, Vitamin C and Vitamin E also lot of minerals which
zinc, potassium, calcium, copper etc. plus adding DHEA for more nutrition
for the skin.
|
|
17.
|
The
Collection:
A makeup kit containing Face Primer, Silk Whipped
Foundation, Wet/Dry Powder. Eye Shadow, Black eye pencil, Pressed
Shimmer Powder, Shimmer Blush, Long Lasting Lipstick, Lip Gloss
Palate, Cream Lipstick, and Coordinating Lip
Pencils.
|
Automotive Additive
Products
We
currently offer the following two different automotive products:
|
|
|
|
1.
|
Fast
Team Plus:
A tire sealant
solution for the purpose of protecting a tire against air
loss.
|
|
2.
|
MotoMax:
A biodegradable solution to regulate an engine’s
temperature.
|
Environmentally Friendly
Home Cleaning Product
Natural
Clean
: We currently offer Natural Clean; a 100% biodegradable
multi-purpose cleaning solution that aids in the clean-up and removal of a
number of different stains and spills including grease, tar, crayons, pet
stains, soap film, blood, ink and make-up. Natural Clean is non-toxic,
non-caustic, non-pollutant, non-flammable and non-rusting and can be used for
cleaning kitchens, baths and cars as well being used as an insect repellant when
applied on skin or clothing.
Other
Flip-Top
Portable Filter
: We also offer our Flip-Top Portable Filter – a 24-ounce
drinking container in a portable tote and featuring a filtration system which
can be easily replaced with cartridges designed for various water condition for
“sip and enjoy” drinking.
Distribution
of Our Products
Our
products are sold exclusively on the Internet. Customer orders are
filled using the following general process:
|
·
|
We
buy product ingredients, packaging materials, containers and boxes from
third parties located in China and, in the case of our Rooibos
tea, South Africa;
|
|
·
|
We
have those products shipped to New York City for packaging by other third
parties;
|
|
·
|
We
have the completed products sent to our fulfillment center located in the
City of Industry in California; and
|
|
·
|
We
then ship our products to our Affiliates in China and Hong Kong who sell
them to consumers.
|
A person
becomes an Affiliate by submitting an application through our website. After an
Affiliate places an order and pays for the products purchased, we ship the
products to the Affiliate who then sells them to consumers. The
Affiliate receives a commission on the products sold. We also
pay the Affiliate a commission on products sold by other Affiliates introduced
by the Affiliate to the Company. Affiliates are not required to buy products,
recruit others, attend meetings or report to us.
Affiliate
commissions are issued in the form of a pay card. Commissions are credited in
U.S. Dollars and can be withdrawn in local currency at an ATM in the country of
the Affiliate.
Business-to-Consumer
(B2C) Internet Marketing
We market
our products to Affiliates through an internet platform which consists of us
selling our products directly to members of our Affiliate program through our
website,
www.eftb.us
. The
contents of our website are not incorporated by reference herein.
Our main
demographic are Asian people between the ages of 20 to 50 years old who are
concerned with their health and beauty and who we believe are likely to order
the American merchandise brands advertised on our website. We believe we are a
value-added bridge between Asian consumers and American merchandise brands. The
Company provides American merchandise brands to Asian consumers and also serves
as a gateway for American suppliers to the Asian retail market.
Throughout all of our
marketing and promotional activities, we seek to present a consistent brand
image.
We intend
to be able to create an extensive proprietary database of customer information
including customer demographics, purchasing history, and proximity to an
existing or planned premium retail store. We believe our ability to effectively
design and manage our future marketing and promotional programs is enhanced by
this source of information, allowing us to adjust the frequency, timing and
content of each program to maximize the benefit gained. We have not yet
developed our database systems and plan to begin so in the second quarter of
2008.
Significant
Vendors
Names
|
Addresses
|
Products
|
De
Sari
|
808
Meridian Cir, Corona, CA 92882
|
Cosmetics
|
|
|
|
Cornerstone,
ltd
|
28241
Crown Valley Pkwy #425,
|
Anti-aging
products
|
|
Laguna
Niguel, CA 92677
|
|
|
|
|
Palmer
Natural Products
|
831
S. State ST. #C, San Jacinto, CA 92583
|
Nutritional
products
|
|
|
|
Spectrum
Chemical Mfg. Corp
|
14422
So. San Pedro St, Gardena, CA 90248
|
Fuel
additive
|
|
|
|
Chemtec
Chemical Co.
|
21900
Marilla ST, Chatsworth, CA 91311
|
Alkamuls
|
|
|
|
Werner
G. Smith, Inc.
|
P.O.
BOX 73671, Cleveland, OHIO 44193
|
Fuel
additive
|
|
|
|
Ever
Spring, Inc.
|
17588
E Rowland ST #236
|
Cosmetics
|
|
City
of Industry, CA 91748
|
|
|
|
|
ABCO
Holdings Inc.
|
29101
Tradewinds Circle
|
Nutritional
products
|
|
Lake
Elsinore, CA 92530
|
&
Cosmetics
|
|
|
|
BYS
Company
|
P.O.
Box 75, Murrieta, CA 92564
|
Nutritional
products
|
|
|
|
LaVie
|
15748
Tettey 7
|
Cosmetics
|
|
Hacienda
Heights. CA 91745
|
|
|
|
|
Polycil
Health, Inc.
|
1125
Lindero Canyon Road A8
|
Nutritional
Products
|
|
Suite#117
|
|
|
Westlake
Village, Ca 91362
|
|
Significant
Customers
None of
our customers account for a significant portion of our business.
Competition
The
distribution channels for our products are highly competitive. The internet
online commerce market is rapidly evolving and intensely competitive. Barriers
to entry are minimal and current and new competitors can launch new websites at
a relatively low cost. Many competitors in this area have greater financial,
technical and marketing resources than our Company. Continued advancement in
technology and increasing access to that technology is paving the way for growth
in direct marketing. We believe that we are well-positioned within the Asian
consumer market with our plan of supplying American merchandise brands to Asian
consumers and that our exposure to both the Asian and American cultures gives us
a competitive advantage. We also face competition for consumers from retailers,
duty-free retailers, specialty stores, department stores and specialty and
general merchandise catalogs, many of which have greater financial and marketing
resources than we have.
U.S
Government Regulation
Our
Company and our products are subject to regulation by the FDA, the FTC, State
Attorneys General in the U.S., and the international regulatory authorities in
the countries in which our products are produced or sold. Such regulations
principally relate to the safety of our ingredients, proper labeling,
advertising, packaging and marketing of our products. For example, in Japan, the
Ministry of Health, Labor and Welfare requires our distributor to have an import
business license and to
register each personal care
product imported into Japan. In addition, the sale of cosmetics products is
regulated in the European Union member states under the European Union Cosmetics
Directive, which requires a uniform application for foreign companies making
personal care product sales. We believe that we are in substantial compliance
with such regulations, as well as with applicable federal, state, local,
international and other countries' rules and regulations governing the discharge
of materials hazardous to the environment. There are no capital expenditures for
environmental control matters either planned in the current year or expected in
the near future. However, regulations that are designed to protect consumers or
the environment have an influence on our products.
Under the
FDC Act, cosmetics are defined as articles applied to the human body to cleanse,
beautify or alter the appearance. Cosmetics are not subject to pre-market
approval by the FDA but the product and ingredients must be tested to assure
safety. If the product or ingredients are not tested for safety, a specific
warning is required. The FDA monitors compliance of cosmetic products through
random inspection of cosmetic manufacturers and distributors. The FDA utilizes
an "intended use" doctrine to determine whether a product is a drug or cosmetic
by the labeling claims made for the product. If a health or cosmetic product is
intended for a disease condition or to affect the structure or function of the
human body, the FDA will regulate the product as a drug rather than a cosmetic.
The product will then be subject to all drug requirements under the FDC Act
including pre-approval by the FDA of the product before future marketing. The
labeling of health and cosmetic products is subject to the requirements of the
FDC Act, Fair Packaging and Labeling Act and other FDA regulations. If the FDA
considers label claims for our cosmetic products to be claims affecting the
structure or function of the human body, our products may be regulated as drugs.
If our products were regulated as drugs by the FDA, we would be required to
conduct clinical trials to demonstrate safety and efficacy of our products in
order to continue marketing such products. However, we may not have sufficient
resources to conduct any required clinical studies and we may not be able to
demonstrate sufficient efficacy or safety data to resume future marketing of
such products. Any inquiries from the FDA or other foreign regulatory
authorities into the regulatory status of our cosmetic products and any related
interruption in the marketing and sale of those products could severely damage
our brands and company reputation in the marketplace.
Properties
Our
principal executive office consists of 6,500 square feet located at Langham
Office Tower, 8 Argyle Street, Suite 3706, Kowloon, Hong Kong
SAR. This property is owned by the previous owners of Top Capital. We
lease this property for five years ending 2012 for $50,000 per
month.
We also
lease a 1,700 square foot management office located at the Sino Financial Tower,
14
th
Floor, Wanchai, Hong Kong Island, Hong Kong SAR for $1 per month which will end
December 31, 2008 and will not be renewed.
We also
lease, through EFT, Inc., a 10,268 square foot facility center in the City of
Industry in California for $9,035 per month pursuant to a lease, dated August 1,
2005, with Lee & Lee. This lease expires on July 31,
2009.
We
believe our properties are sufficient for our current operations.
Sources
and Availability of Raw Materials and the Names of Principal
Suppliers
We buy
product ingredients, packaging materials, containers and boxes from third
parties located in China and, in the case of our Rooibos tea, South
Africa. These raw materials are readably available and we are not dependent on
any one supplier. However, to the extent we are limited or
prevented from acquiring raw materials and products from suppliers, in general,
in China or South Africa, our operations could be disrupted until alternative
suppliers are found which could negatively impact our business, financial
condition and results of operations.
Dependence
on One or a Few Major Customers
We do not
currently depend on any one or more customers.
Intellectual
Property
We do not
currently hold any patents or trademarks, nor are we a party to any licenses,
franchises, concessions, royalty agreements or labor contracts.
Research
and Development Activities
During
the last two fiscal years, we have not engaged in any research and development
activities nor do we contemplate spending any time on such activities in the
foreseeable future.
Environmental
Laws
Our
products are biodegradable and are not impacted by federal, state or local
environmental laws.
Employees
As of the
date of this Registration Statement, we have 30 full-time employees, 20 of whom
work at our fulfillment center in the City of Industry, California and the
remaining ten at our Kowloon, Hong Kong and Wanchai, Hong Kong
offices. We believe that the number of employees is satisfactory and
do not currently anticipate hiring additional employees in the near
future.
None of
our employees are represented by a collective bargaining agreement. There are no
pending labor-related legal actions against us filed with any state or federal
agency. We believe our employee relations are good.
Legal
Proceedings
We are
not a party to, nor are we threatened with, any claims or legal actions that
would have a material adverse impact on our financial position, operations or
potential performance. We do not have any knowledge of any pending
litigation.
ITEM
1A. RISK
FACTORS.
An
investment in our securities involves risk. Please consider the
following risks and uncertainties together with the other information presented
in this Registration Statement, before investing in our securities.
Risks Related to Our
Business
The extent of our
sourcing and manufacturing may
adversely affect
our business, financial condition and results of
operations.
Substantially
all of our products are manufactured inside the United States and sold in Hong
Kong and/or China. As a result of the magnitude of this sourcing and
shipping, our respective businesses are subject to the following
risks:
|
|
·
|
political
and economic instability in foreign countries, including heightened
terrorism and other security concerns, which could subject imported or
exported goods to additional or more frequent inspections, leading to
delays in deliveries or impoundment of goods, or to an increase in
transportation costs of raw materials or finished
product;
|
·
|
the
imposition of regulations and quotas relating to imports, including quotas
imposed by bilateral agreements between the United States from where we
primarily source our products and foreign countries, including
China;
|
·
|
the
imposition of duties, taxes and other charges on
imports;
|
·
|
significant
fluctuation of the value of the U.S. dollar against the Hong Kong Dollar,
Chinese Yuan and other foreign currencies;
|
·
|
restrictions
on the transfer of funds to or from foreign countries;
and
|
·
|
violations
by foreign contractors of labor and wage standards and resulting adverse
publicity.
|
If these
risks limit or prevent us from acquiring products from foreign suppliers, our
operations could be disrupted until alternative suppliers are found, which could
negatively impact our business, financial condition and results of
operations.
We
oper
ate on very tight
delivery schedules and, if there are delays and expected delivery dates cannot
be met, it could negatively affect our profitability.
If there
is a delay in the delivery of goods and delivery schedules cannot be met, then
our Affiliate and retail customers may cease doing business with us which would
cause negative gross profits and therefore, our profitability. We may also incur
extra costs to meet delivery dates, which would also reduce our company’s
profitability.
We
face intense competition and any failure to timely implement our business plan
could diminish or suspend our development and possibly cease our
operations.
The
distribution channels for our products are highly competitive. From time to time
in the Business to Consumer (B2C) e-commerce business, competitors, typically
catalog and other online retailers, will attempt to secure contracts with
various American merchandise brands to offer merchandise to their consumers. We
also face competition for consumers from retailers, duty-free retailers,
specialty stores, department stores and specialty and general merchandise
catalogs, many of which have greater financial and marketing resources than we
have. In our electronic commerce sales, we face intense competition from other
content providers and retailers who seek to offer their products and/or services
at their own websites or those of other third parties. Our business will also be
affected by existing competition, which the Company anticipates will intensify,
and by additional entrants to the market who may already have the necessary
technology and expertise, many of whom may have substantially greater resources
than the Company.
Consumers
concerns about purchasing items through the Internet as well as external or
internal infrastructure system failures could negatively impact our e-commerce
sales or cause us to incur additional costs.
The
e-commerce business is vulnerable to consumer privacy concerns relating to
purchasing items over the Internet, security breaches, and failures of Internet
infrastructure and communications systems. If consumer confidence in making
purchases over the Internet declines as a result of privacy or other concerns,
e-commerce net sales could decline. We may be required to incur increased costs
to address or remedy any system failures or security breaches.
Our
business depends on the ability to source merchandise in a timely and
cost-effective manner.
The
merchandise intended to be sold by us will be sourced from a wide variety of
American vendors. Our business depends on being able to find qualified American
vendors and access products in a timely and efficient manner. All of the vendors
must comply with applicable laws. Political or financial instability, changes in
U.S. and foreign laws and regulations affecting the importation and taxation of
goods, including duties, tariffs and quotas, or changes in the enforcement of
those laws and regulations, as well as currency exchange rates, transport
capacity and costs and other factors relating to foreign trade and the inability
to access suitable merchandise on acceptable terms could adversely impact our
results of operations.
We
face significant inventory risks.
We are
exposed to significant inventory risks that may adversely affect our operating
results as a result of new product launches, rapid changes in product cycles,
changes in consumer tastes with respect to our products and other factors. We
must accurately predict these trends and avoid overstocking or under-stocking
products. Demand for products, however, can change significantly between the
time inventory is ordered and the date of sale. In addition, when we begin
selling a new product, it may be difficult to establish vendor relationships,
determine appropriate product selection, and accurately forecast product demand.
The acquisition of certain types of inventory, or inventory from certain
sources, may require significant lead-time and prepayment, and such inventory
may not be returnable. We carry a broad selection and significant inventory
levels of certain products, such as consumer electronics, and we may be unable
to sell products in sufficient quantities or during the relevant selling
seasons. Any one of the inventory risk factors set forth above may adversely
affect our operating results.
We
depend on third parties to manufacture all of the products we sell, and we don’t
have any contracts with any of the manufacturers of our products. If we are
unable to maintain these manufacturing relationships or enter into additional or
different arrangements, we may fail to meet customer demand and our net sales
and profitability may suffer as a result.
Our
manufacturers also may increase the cost of the products we purchase from them.
If our manufacturers increase our costs, our margins would suffer unless we were
able to pass along these increased costs to our customers. We may not be able to
develop relationships with new vendors and manufacturers at the same prices or
at all, and even if we do establish such relationships, such new vendors and
manufacturers might not allocate sufficient capacity to us to meet our
requirements. Furthermore, products from alternative sources, if any, may be of
a lesser quality or more expensive than those we currently purchase. In
addition, if we increase our product orders significantly from the amounts we
have historically ordered from our manufacturers, our manufacturers might be
unable to meet this increased demand. To the extent we fail to obtain additional
products from our manufacturers, we may not be able to meet customer demand,
which could harm our net sales and profitability.
Our
third-party manufacturers may not continue to produce products that are
consistent with our standards or applicable regulatory requirements, which could
harm our brand, cause customer dissatisfaction and require us to find
alternative suppliers of our products.
Our
third-party manufacturers may not maintain adequate controls with respect to
product specifications and quality and may not continue to produce products that
are consistent with our standards or applicable regulatory requirements, as
described below. If we are forced to rely on products of inferior quality, then
our customer satisfaction and brand reputation would likely suffer, which would
lead to reduced net sales. In addition, we may be required to find new
third-party manufacturers to supply our products. There can be no assurance that
we would be successful in finding third-party manufacturers that make products
meeting our standards of quality.
In
accordance with the Federal Food, Drug and Cosmetic Act, or FDC Act, and
regulations enforced by the Food and Drug Administration, or FDA, the
manufacturing processes of our third party manufacturers must comply with the
FDA's current Good Manufacturing Practices, or cGMPs, for manufacturing drug
products. The manufacturing of our cosmetic products are subject to the
misbranding and adulteration sections of the FDC Act applicable to cosmetics.
The FDA may inspect our facilities and those of our third-party manufacturers
periodically to determine if we and our third-party manufacturers are complying
with cGMPs and the FDC Act provisions applicable to manufacturing cosmetic
products. We have limited control over the FDA compliance of our third-party
manufacturers. A history of past compliance is not a guarantee that future FDA
regulatory manufacturing requirements will not mandate other compliance steps
with associated expense.
If we or
our third-party manufacturers fail to comply with federal, state or foreign
regulations, we could be required to suspend manufacturing operations, change
product formulations, suspend the sale of products with non-complying
specifications, initiate product recalls or change product labeling, packaging
or advertising or take other corrective action. In addition, sanctions under the
FDC Act may include seizure of products, injunctions against future shipment of
products, restitution and disgorgement of profits, operating restrictions and
criminal prosecution. If any of the above events occurs, we would be required to
expend significant resources to comply with FDA
requirements and we might need to seek the services of
alternative third-party manufacturers. Obtaining the required regulatory
approvals, including from the FDA, to use alternative third-party manufacturers
may involve a lengthy and uncertain process. A prolonged interruption in the
manufacturing of one or more of our products as a result of non-compliance could
decrease our supply of products available for sale which could reduce our net
sales, gross profits and market share, as well as harm our overall business,
prospects, financial condition and results of operations.
Future
increases in the price of gasoline may cut into our margins and if we are unable
to pass those costs to our Affiliates, our profit margins will
decrease.
We pay
for the shipment of goods from our vendors. The recent worldwide
prices of gas have significantly and rapidly fluctuated in the recent
past. Increased fuel prices increases our costs of sales which
decrease our profit margins of profit. Future increases in the price
of gasoline will decrease our profit margins to the extent we are unable to
foresee them and pass on any increased costs to our
Affiliates. Decreased margins may have an adverse effect on our
business and operations and adversely affect our stock price.
We
are subject to the risks of doing business abroad.
Some of
our products originate from abroad (e.g., our teas originate from South Africa)
and all of our Affiliates are located in China and Hong Kong. As
such, we are subject to the usual risks of doing business abroad, including
currency fluctuations, political or labor instability and potential import
restrictions, duties and tariffs. We do not maintain insurance for the potential
lost profits due to such disruptions. Political or economic instability in the
China or Hong Kong or elsewhere could cause substantial disruption in our
business. This could materially adversely affect our financial condition and
results of operations. Heightened terrorism security concerns could subject
exported goods to additional, more frequent or more thorough inspections. This
could delay deliveries or increase costs, which could adversely impact our
results of operations. In addition, since we negotiate our purchase orders with
customers in United States dollars, the value of the United States dollar
against local currencies could impact our cost in dollars of production from
these manufacturers. We are not currently engaged in any hedging activities to
protect against these currency risks. If there is downward pressure on the value
of the dollar, our customers’ purchase prices for our products could increase.
We may not be able to offset an increase in production costs with a price
increase to our customers.
Fluctuations
in the price, availability and quality of materials used in our products could
have a material adverse effect on our cost of goods sold and our ability to meet
our customers’ demands.
Fluctuations
in the price, availability and quality of the materials used in our products
could have a material adverse effect on our cost of sales or our ability to meet
our customers’ demands. We compete with numerous entities for supplies of
materials. We may not be able to pass on all or any portion of higher
material prices to our customers.
The
regulatory status of our products could change, and we may be required to
conduct clinical trials to establish efficacy and safety or cease to market
these products.
The FDA
does not have a premarket approval system for natural sprays, cosmetics and skin
care products, and we believe we are permitted to market our products and have
them manufactured without submitting safety or efficacy data to the FDA.
However, the FDA may in the future determine to regulate our products or the
ingredients included in our products as drugs or biologics. If certain of our
products are deemed to be drugs or biologics we would be required to conduct
clinical trials to demonstrate the safety and efficacy of these products in
order to continue to market and sell them. In such event, we may not have
sufficient resources to conduct any required clinical trials, and we may not be
able to establish sufficient efficacy or safety data to resume the sale of these
products. Any inquiries by the FDA or any foreign regulatory authorities into
the regulatory status of our products and any related interruption in the
marketing and sale of these products could severely damage our brand reputation
and image in the marketplace, as well as our relationships with customers, which
would harm our business, prospects, financial condition and results of
operations.
In both
our U.S. and foreign markets, we are affected by extensive laws, governmental
regulations, administrative determinations, court decisions and similar
constraints. Such laws, regulations and other constraints may exist at the
federal, state or local levels in the United States and at analogous levels of
government in foreign jurisdictions.
The
formulation, manufacturing, packaging, labeling, distribution, importation, sale
and storage of our products are subject to extensive regulation by various
federal agencies, including the FDA, the Federal Trade Commission, or FTC, state
attorneys general in the U.S., the Ministry of Health, Labor and Welfare in
Japan, as well as by various other federal, state, local and international
regulatory authorities in the countries in which our products are manufactured,
distributed or sold. If we or our manufacturers fail to comply with those
regulations, we could become subject to significant penalties or claims, which
could harm our results of operations or our ability to conduct our business. In
addition, the adoption of new regulations or changes in the interpretations of
existing regulations may result in significant compliance costs or
discontinuation of product sales and may impair the marketing of our products,
resulting in significant loss of net sales.
In
addition, our failure to comply with FTC or state regulations, or with
regulations in foreign markets that cover our product claims and advertising,
including direct claims and advertising by us, may result in enforcement actions
and imposition of penalties or otherwise harm the distribution and sale of our
products.
The failure to upgrade information
tec
hnology systems as
necessary could have an adverse effect on our
operations.
Some of
our information technology systems, which are primarily utilized to manage
information necessary to price and ship products and generate reports to report
each customer’s order are dated and are comprised of multiple
applications, rather than one overarching state-of-the-art system. Modifications
involve replacing legacy systems with successor systems, making changes to
legacy systems or acquiring new systems with new functionality. If we are unable
to effectively implement these systems and update them where necessary, this
could have a material adverse effect on its business, financial condition and
results of operations.
The processing,
storage and use of personal da
ta could give
rise to liabilities as a result of governmental regulation, conflicting legal
requirements or differing views of personal privacy
rights.
The
collection of data and processing of transactions through our systems require us
to receive and store a large volume of personally identifiable data. This type
of data is subject to legislation and regulation in various jurisdictions. We
might become exposed to potential liabilities with respect to the data that we
collect, manage and processes, and may incur legal costs if the our information
security policies and procedures are not effective or if it is required to
defend its respective methods of collection, processing and storage of personal
data. Future investigations, lawsuits or adverse publicity relating to its
methods of handling personal data could adversely affect our business, financial
condition and results of operations due to the costs and negative market
reaction relating to such developments.
Our
success is significantly dependent upon our management team. Our success is
particularly dependent upon Mr. Jack Qin, our Chairman and CEO, Ms. Sharon Tang,
our Chief Financial Officer, Mr. George Curry, Chief Marketing Officer, and Dr.
J. B. Williams, our Chief Administrative Officer and Secretary. The loss of any
of them could have an adverse effect on us. We do not currently have any
employment agreements with our executive officers other than Ms. Sharon Tang.
Accordingly, there can be no assurance that they will remain associated with
us. If we were to lose the services of Mr. Jack Qin, Ms. Tang, Mr.
George Curry and/or Dr. Williams or any other key employees, we may experience
difficulties in effectively implementing our business plan.
Jun
Qin Liu, our board member, owns 68.4% of our issued and outstanding common
stock.
As of the
date of this Registration Statement, Jin Qin Liu, a member of our board of
directors, beneficially owns 51,999,000 shares of our common stock which
represents approximately 68.4% of our issued and outstanding common
stock. This means that Mr. Qin can approve or reject all
matters on which the Company needs approval by not less than a majority of
stockholders, including mergers, acquisitions, sales of assets, amending the
Company’s Certificate of Incorporation, electing the Company’s Board of
Directors, etc. and essentially gives Mr. Liu control of the management and day
to day operations of the Company. This might make the Company less
attractive for strategic partners or tender offers which might suppress the
value of our common stock.
We
may not be able to compete successfully with current and future
competitors.
We are in
a competitive industry and compete with several other companies, some of which
have far greater marketing and financial resources and experience than we do. In
addition to established competitors, there is ease of market entry for other
companies that choose to compete with us. Effective competition could result in
price reductions, reduced margins or have other negative implications, any of
which could adversely affect our business and chances for success. Competition
is likely to increase significantly as new companies enter the market and
current competitors expand their services. Many of these potential competitors
are likely to enjoy substantial competitive advantages, including: larger
technical staffs, greater name recognition, larger customer bases and
substantially greater financial, marketing, technical and other resources. To be
competitive, we must respond promptly and effectively to the challenges of
technological change, evolving standards and competitors' innovations by
continuing to enhance our services and sales and marketing channels. Any pricing
pressures, reduced margins or loss of market share resulting from increased
competition, or our failure to compete effectively, could seriously damage our
business and chances for success.
We
may not be able to manage our growth effectively.
We must
continually implement and improve our products and/or services, operations,
operating procedures and quality controls on a timely basis, as well as expand,
train, motivate and manage our work force in order to accommodate anticipated
growth and compete effectively in our market segment. Successful implementation
of our strategy also requires that we establish and manage a competent,
dedicated work force and employ additional key employees in corporate
management, product design, client service and sales. We can give no assurance
that our personnel, systems, procedures and controls will be adequate to support
our existing and future operations. If we fail to implement and improve these
operations, there could be a material, adverse effect on our business, operating
results and financial condition.
If
we do not continually update our products, they may become obsolete and we may
not be able to compete with other companies.
Our
industry and internet technology, software applications and related
infrastructure are rapidly evolving. Our ability to compete depends on the
continuing development of our offered products and technologies. We cannot
assure you that we will be able to keep pace with technological advances or that
our products will not become obsolete. We cannot assure you that competitors
will not offer related or similar products and bring them to market before we
do, or do so more successfully, or that they will not develop technologies and
offer products more effective than any that we offer. If that happens, our
business, prospects, results of operations and financial condition will be
materially adversely affected.
Our
business is concentrated in Hong Kong and China, making our operations sensitive
to economic fluctuations.
All of
our offered products are marketed outside of the U.S., mostly in Hong Kong and
China. Should we be unable to further diversify our markets, we may be subject
to economic fluctuations within Hong Kong and China. If our business
does not succeed, you could lose all or part of your investment.
If
we do not succeed in our expansion strategy, we may not achieve our anticipated
results.
Our
business strategy is designed to expand the sales of our products and services.
Our ability to implement our plans will depend primarily on the ability to
attract customers and products. We can give you no assurance that any of our
expansion plans will be successful or that we will be able to establish
additional favorable relationships for the marketing and sales of products and
services. If we are unable to expand our business, our business operations could
be adversely affected.
If
we are unable to attract additional qualified and skilled personnel, our ability
to grow our business may be harmed.
If we are
unable to continue to attract, retain and motivate highly qualified management
and personnel and develop and maintain important third party relationships, we
may not be able to achieve our objectives. Competition for skilled personnel is
intense. If we are unable to hire and retain skilled personnel, our business,
financial condition, operating results and future prospects could be materially
adversely affected.
A
dispute concerning the infringement or misappropriation of our proprietary
rights or the proprietary rights of others could be time consuming and costly,
and an unfavorable outcome could harm our business.
We may be
exposed to future litigation by third parties based on claims that our programs
infringe the intellectual property rights of others. If we become involved in
litigation, it could consume a substantial portion of our managerial and
financial resources, regardless of whether we win or lose. We may not be able to
afford the costs of litigation. Any legal action against us or our collaborators
could lead to:
|
·
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payment
of damages, potentially treble damages, if we are found to have willfully
infringed a party’s patent rights;
|
|
·
|
injunctive
or other equitable relief that may effectively block our ability to
further develop, commercialize and sell products;
or
|
|
·
|
we
or our collaborators having to enter into license arrangements that may
not be available on commercially acceptable terms, if at
all.
|
As a
result, we could be prevented from commercializing current or future
products.
We
have agreed to indemnify our officers and directors to fullest extent permitted
under law.
EFT
BioTech Holdings, Inc.’s Certificate of Incorporation contains a provision
eliminating the personal liability of officers and directors to the extent
allowed under the law of the State of Nevada. Under such provision, a
stockholder may only prosecute an action against an officer and/or a director if
he can show acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law or the unlawful payment of distributions.
We
may make acquisitions and strategic investments, which will involve numerous
risks. We may not be able to address these risks without substantial expense,
delay or other operational or financial problems.
Although
we have a limited history of making acquisitions or strategic investments, we
may acquire or make investments in related businesses or products in the future.
Acquisitions or investments involve various risks, such as:
|
•
|
higher
than expected acquisition and integration
costs;
|
|
•
|
the
difficulty of integrating the operations and personnel of the acquired
business;
|
|
•
|
the
potential disruption of our ongoing business, including the diversion of
management time and attention;
|
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•
|
the
possible inability to obtain the desired financial and strategic benefits
from the acquisition or investment;
|
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•
|
assumption
of unanticipated liabilities;
|
|
•
|
incurrence
of substantial debt or dilutive issuances of securities to pay for
acquisitions;
|
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•
|
impairment
in relationships with key suppliers and personnel of any acquired
businesses due to changes in management and
ownership;
|
|
•
|
the
loss of key employees of an acquired business;
and
|
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•
|
the
possibility of our entering markets in which we have limited prior
experience.
|
Future
acquisitions and investments could also result in substantial cash expenditures,
potentially dilutive issuance of our equity securities, our incurring of
additional debt and contingent liabilities, and amortization expenses related to
other intangible assets that could adversely affect our business, operating
results and financial condition.
We
are subject to risks related to our international operations.
As we
expand our international operations, we will be increasingly susceptible to the
following risks associated with international operations:
• import
and export license requirements;
• trade
restrictions;
• changes
in tariffs and taxes;
• restrictions
on repatriating foreign profits back to the United States;
• the
imposition of foreign and domestic governmental controls;
• unfamiliarity
with foreign laws and regulations;
• difficulties
in staffing and managing international operations;
• product
registration, permitting and regulatory compliance;
• thefts
and other crimes; and
• geopolitical
conditions, such as terrorist attacks, war or other military
action.
Risks Related to the
Securities
If
we fail to continue to meet certain SEC standards, our common stock may become
subject to the “penny stock” rules.
The
Company’s Common Stock is currently traded on the OTCBB Pink Sheets under the
ticker symbol “EFTB.” As of the date of this Registration Statement,
there are 75,983,205 shares of common stock issued and outstanding. The
Company’s current public float is 23,383,205 shares of Common Stock and last
sale price of the Company’s Common Stock as of the close of business on December
9, 2008, as reported on the Pink Sheets, was $3.70. If we fail to continue to
meet certain SEC standards, our common stock will become subject to the SEC’s
“penny stock” rules. The term “penny stock” generally refers to low-priced
(below $5), speculative securities of very small companies. While penny stocks
generally are quoted over-the-counter, such as on the OTC Bulletin Board or in
the Pink Sheets, they may also trade on securities exchanges, including foreign
securities exchanges. In addition, penny stocks include the securities of
certain private companies with no active trading market.
Before a
broker-dealer can sell a penny stock, SEC rules require the firm to first
approve the customer for the transaction and receive from the customer a written
agreement to the transaction. The firm must furnish the customer a document
describing the risks of investing in penny stocks. The firm must tell the
customer the current market quotation, if any, for the penny stock and the
compensation the firm and its broker will receive for the trade. Finally, the
firm must send monthly account statements showing the market value of each penny
stock held in the customer’s account.
Penny
stocks may trade infrequently, which means that it may be difficult to sell
penny stock shares once you own them. Because it may be difficult to find
quotations for certain penny stocks, they may be impossible to accurately price.
Investors in penny stocks
should be prepared for the possibility that they may lose their whole
investment.
The
price of our shares of Common Stock in the future may be volatile.
The
market price of our Common Stock will likely be volatile and could fluctuate
widely in price in response to various factors, many of which are beyond our
control, including: technological innovations or new products and services by us
or our competitors; additions or departures of key personnel; sales of our
Common Stock; our ability to integrate operations, technology, products and
services; our ability to execute our business plan; operating results below
expectations; loss of any strategic relationship; industry developments;
economic and other external factors; and period-to-period fluctuations in our
financial results. In addition, the securities markets have from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations
may also materially and adversely affect the market price of our Common
Stock.
Our
Preferred Stock may be used to avoid a change in control of the
Company.
Our
Certificate of Incorporation authorizes the issuance of 25,000,000 million
shares of preferred stock with designations, rights and preferences determined
from time to time by the Board of Directors. Accordingly, the Board of Directors
is empowered, without stockholder approval, to issue additional Preferred Stock
with dividend, liquidation, conversion, voting or other rights that could be
used to avoid a change of control of the Company and which suppress the value of
our Common Stock.
ITEM
2. FINANCIAL
INFORMATION.
Selected
Financial Data
|
For
the Fiscal Year Ended
March
31,
|
Item
|
2008
(Audited)
|
2007
(Audited)
|
Net
Sales
|
$30,249,302
|
$14,151,156
|
Income
(Loss) from Continuing Operations
|
$20,795,695
|
$10,063,293
|
Income
(Loss) from Continuing Operations per Common Share
|
$0.34
|
$0.17
|
Total
Assets
|
$57,427,420
|
$2,826,369
|
Long-Term
Obligations (1)
|
$3,036,140
|
$3,095,245
|
Capital
Leases
|
$0
|
$0
|
Redeemable
Preferred Stock
|
$0
|
$0
|
Cash
Dividends and Declared per Common Share
|
$0
|
$
0
|
(1)
|
Consists
of lease obligations for offices in Hong Kong and City of Industry,
California.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS
This
Report contains statements that we believe are, or may be considered to be,
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact included in this Report regarding the prospects of our industry
or our prospects, plans, financial position or business strategy, may constitute
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking words such as “may,” “will,”
“expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,”
“plans,” “forecasts,” “continue” or “could” or the negatives of these terms or
variations of them or similar terms. Furthermore, such forward-looking
statements may be included in various filings that we make with the SEC or press
releases or oral statements made by or with the approval of one of our
authorized executive officers. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that these expectations will prove to be correct. These forward-looking
statements are subject to certain known and unknown risks and uncertainties, as
well as assumptions that could cause actual results to differ materially from
those reflected in these forward-looking statements. Readers are cautioned not
to place undue reliance on any forward-looking statements contained herein,
which reflect management’s opinions only as of the date hereof. Except as
required by law, we undertake no obligation to revise or publicly release the
results of any revision to any forward-looking statements. You are advised,
however, to consult any additional disclosures we make in our reports to the
SEC. All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained in this Report.
Overview
EFT
BioTech Holdings, Inc. is an E-Business company designed around the concept of
Business-to-Customer using the World Wide Web as our storefront and business
platform, with products lines in numerous different markets. By covering
several markets, we believe we can keep our sales diversified and active. We
believe that having only one single product line could possibly limit repeat
business from that customer to products only in that line.
We offer
over 22 different nutritional products, of which 21 are oral sprays, 18
different personal care products consisting of various beauty products; two
automotive products, an environmentally friendly house cleaner and flip top
portable drinking container which contains a filter to remove impurities from
the water. We conduct our business in several markets. By
covering several markets, we believe we can keep our sales diversified and
active. We believe that having only one single product line could possibly limit
repeat business from that customer to products only in that line.
The
Company’s Common Stock is currently traded on the Pink OTC Markets Inc. (the
“Pink Sheets”) under the ticker symbol “EFTB.” Upon the effectiveness
of this Registration Statement on Form 10, Buckman, Buckman & Reid, Inc.
intends to file an application with FINRA for authorization to act as a market
maker of our common stock on the OTC Bulletin Board. Buckman, Buckman
& Reid, Inc. served as the placement agent of our Units in the Regulation S
Offering commenced on April 25, 2008 which expired on October 25, 2008 and which
is discussed below.
As of the
date of this Registration Statement, there are 75,983,205 shares of Common Stock
outstanding of the Company Stock, 52,600,000 of which (approximately 69.2%) are
beneficially held or controlled by the executive officers and directors of the
Company. The Company’s current public float is 23,383,205 shares of
Common Stock and last sale price of the Company’s Common Stock as of the close
of business on December 9, 2008, as reported on the Pink Sheets, was
$3.70.
Organizational
History
EFT
BioTech Holdings, Inc., (formerly HumWare Media Corporation) was incorporated in
the state of Nevada on March 19, 1992 (“EFT Holdings” or the
“Company”).
On
November 7, 2007, HumWare Media Corporation changed its name to EFT BioTech
Holdings, Inc. and effected a reverse stock split of 20,000 shares of common
stock for 1 share of common stock, which resulted in a decrease in the total
amount of common shares then issued and outstanding.
On
November 18, 2007, the Company issued an aggregate of 53,300,000 shares of its
Common Stock in connection with a share exchange with EFT BioTech, Inc., a
Nevada corporation formed on September 18, 2007 (“EFT BioTech”), pursuant to
which the Company acquired 100% of the issued and outstanding shares of EFT
BioTech in consideration for 53,300,000 shares of the Company’s Common Stock,
representing 87.01% of the Company’s capital stock on a fully-diluted
basis.
Upon the
consummation of the merger, EFT BioTech became a wholly-owned subsidiary of EFT
Holdings. The Company is a holding company and conducts its business through the
operations of EFT BioTech and EFT BioTech’s wholly-owned
subsidiary: EFT Limited (BVI). EFT Limited (BVI) also has
four wholly-owned subsidiaries: EFT, Inc., Top Capital, Ltd. (BVI), EFT (HK),
Ltd. and EFT International Ltd. (BVI). The information in this
Registration Statement concerning the Company’s business and operations pertains
to EFT Holdings and its subsidiaries. Terms such as “EFT,” “we,”
“us,” “our” and similar phrases pertain to EFT BioTech Holdings, Inc. and its
subsidiaries.
On
September 23, 2008, the Company signed a loan agreement with Excalibur to lend
$2,000,000 at interest rate of 3.75% per month with a term of no more than 60
days.
On
October 25, 2008, EFT Investment Co., Ltd., a wholly-owned subsidiary of EFT
BioTech Holdings, Inc. formed in Taiwan, completed the acquisition of 58,567,750
shares of common stock of Excalibur, representing approximately 49% shares of
issued and outstanding shares of Excalibur, for an aggregate purchase price of
USD $19,193,000.
On
November 14, 2008, all the amounts receivables from Excalibur were paid back in
full.
Distribution
of Our Products
We sell
our products exclusively on the Internet. Customer orders are filled
using the following general process:
|
·
|
We
buy product ingredients, packaging materials, containers and boxes from
third parties located in China and, in the case of our Rooibos
tea, South Africa;
|
|
·
|
We
have those products shipped to New York City for packaging by other third
parties;
|
|
·
|
We
have the completed products sent to our fulfillment center located in the
City of Industry in California; and
|
|
·
|
We
then ship our products to our Affiliates in China and Hong Kong who sell
them to consumers.
|
A person
becomes an Affiliate by submitting an application through our website. After an
Affiliate places an order and pays for the products purchased, we ship the
products to the Affiliate who then sells them to consumers. The
Affiliate receives a commission on the products sold. We also
pay the Affiliate a commission on products sold by other Affiliates introduced
by the Affiliate to the Company. Affiliates are not required to buy products,
recruit others, attend meetings or report to us.
Affiliate
commissions are issued in the form of a pay card. Commissions are credited in
U.S. Dollars and can be withdrawn in local currency at an ATM in the country of
the Affiliate.
Business-to-Consumer
(B2C) Internet Marketing
We market
and sell our products to through our website,
www.eftb.us
. The
contents of our website are not incorporated by reference herein.
Our main
demographic are Asian people between the ages of 20 to 50 years old who are
concerned with their health and beauty and who we believe are likely to order
the American merchandise brands advertised on our website. We believe we are a
value-added bridge between Asian consumers and American merchandise brands. The
Company provides American merchandise brands to Asian consumers and also serves
as a gateway for American suppliers to the Asian retail market.
Throughout all of our
marketing and promotional activities, we seek to present a consistent brand
image.
We intend
to be able to create an extensive proprietary database of customer information
including customer demographics, purchasing history, and proximity to an
existing or planned premium retail store. We believe our ability to effectively
design and manage our future marketing and promotional programs is enhanced by
this source of information, allowing us to adjust the frequency, timing and
content of each program to maximize the benefit gained. We have not yet
developed our database systems and plan to begin doing so in the second quarter
of 2008.
Industry
Trends
We
believe that the Business to Consumer (B2C) internet market and robust and
consumers have become more confident in ordering products over the internet –
especially in bulk. However, the internet online business to consumer
(B2C) market is rapidly evolving and intensely competitive. Barriers to entry
are minimal and current and new competitors can launch new websites at a
relatively low cost. We are exposed to significant inventory risks that may
adversely affect our operating results as a result of new product launches,
rapid changes in product cycles, changes in consumer tastes with respect to our
products and other factors. We must accurately predict these trends and avoid
overstocking or under-stocking products. Demand for products, however, can
change significantly between the time inventory is ordered and the date of sale.
In addition, when we begin selling a new product, it may be difficult to
establish vendor relationships, determine appropriate product selection, and
accurately forecast product demand. The acquisition of certain types of
inventory, or inventory from certain sources, may require significant lead-time
and prepayment, and such inventory may not be returnable. We carry a broad
selection and significant inventory levels of certain products, such as consumer
electronics, and we may be unable to sell products in sufficient quantities or
during the relevant selling seasons. Any one of the inventory risk factors set
forth above may adversely affect our operating results.
Competition
The
distribution channels for our products are highly competitive. Many competitors
in the business to consumer (B2C) market have greater financial, technical and
marketing resources than our Company. Continued advancement in technology and
increasing access to that technology is paving the way for growth in direct
marketing. We believe that we are well-positioned within the Asian consumer
market with our plan of supplying American merchandise brands to Asian consumers
and that our exposure to both the Asian and American cultures gives us a
competitive advantage. We also face competition for consumers from retailers,
duty-free retailers, specialty stores, department stores and specialty and
general merchandise catalogs, many of which have greater financial and marketing
resources than we have.
U.S
Government Regulation
Our
Company and our products are subject to regulation by the FDA, the FTC, State
Attorneys General in the U.S., and the international regulatory authorities in
the countries in which our products are produced or sold. Such regulations
principally relate to the safety of our ingredients, proper labeling,
advertising, packaging and marketing of our products. For example, in Japan, the
Ministry of Health, Labor and Welfare requires our distributor to have an import
business license and to register each personal care product imported into Japan.
In addition, the sale of cosmetics products is regulated in the European Union
member states under the European Union Cosmetics Directive, which requires a
uniform application for foreign companies making personal care product sales. We
believe that we are in substantial compliance with such regulations, as well as
with applicable federal, state, local, international and other countries' rules
and regulations governing the discharge of materials hazardous to the
environment. There are no capital expenditures for environmental control matters
either planned in the current year or expected in the near future. However,
regulations that are designed to protect consumers or the environment have an
influence on our products.
Under the
FDC Act, cosmetics are defined as articles applied to the human body to cleanse,
beautify or alter the appearance. Cosmetics are not subject to pre-market
approval by the FDA but the product and ingredients must be tested to assure
safety. If the product or ingredients are not tested for safety, a specific
warning is required. The FDA monitors compliance of cosmetic products through
random inspection of cosmetic manufacturers and distributors. The FDA utilizes
an "intended use" doctrine to determine whether a product is a drug or cosmetic
by the labeling claims made for the product. If a health or cosmetic product is
intended for a disease condition or to affect the structure or function of the
human body, the FDA will regulate the product as a drug rather than a cosmetic.
The product will then be subject to all drug requirements under the FDC Act
including pre-approval by the FDA of the product before future marketing. The
labeling of health and cosmetic products is subject to the requirements of the
FDC Act, Fair Packaging and Labeling Act and other FDA regulations. If the FDA
considers label claims for our cosmetic products to be claims affecting the
structure or function of the human body, our products may be regulated as drugs.
If our products are regulated as drugs by the FDA, we would be required to
conduct clinical trials to demonstrate safety and efficacy of our products in
order to continue marketing such products. However, we may not have sufficient
resources to conduct any required clinical studies and we may not be able to
demonstrate sufficient efficacy or safety data to resume future marketing of
such products. Any inquiries from the FDA or other foreign regulatory
authorities into the regulatory status of our cosmetic products and any related
interruption in the marketing and sale of those products could severely damage
our brands and company reputation
CONTRACTUAL
OBLIGATIONS AS OF MARCH 31, 2008
The table
below sets forth the Company’s contractual obligations as of March 31,
2008:
|
Payment
due by period
|
|
Total
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
Long
Term Debt Obligations
|
--
|
--
|
--
|
--
|
--
|
Capital
Lease Obligations
|
--
|
--
|
--
|
--
|
--
|
Operating
Lease Obligations
|
$2,436,140(1)
|
$36,140(1)
|
$2,400,000(2)
|
--
|
--
|
Purchase
Obligations
|
--
|
--
|
--
|
--
|
--
|
Other
Long-Term Liabilities Reflected in the Registrant’s Balance Sheet under
GAAP
|
--
|
--
|
--
|
--
|
--
|
Total
|
$ 2,436,140
|
$36,140
|
$2,400,000
|
--
|
--
|
(1)
|
Consists
of a lease for a 10,268 square foot facility center in the City of
Industry in California for $9,035 per month pursuant to a lease, dated
August 1, 2005, with Lee & Lee. This lease expires on July
31, 2009.
|
(2)
|
Consists
of a lease for a 6,500 square feet facility for our principal executive
office located at Langham Office Tower, 8 Argyle Street, Suite 3706,
Kowloon, Hong Kong SAR for $50,000 per month expiring on March 31,
2012.
|
THE
FISCAL YEAR ENDED MARCH 31, 2008 COMPARED TO THE FISCAL YEAR ENDED MARCH 31,
2007
At March
31, 2008, we had $57,427,420 in total assets, compared to $2,826,369 at March
31, 2007. This increase was due to an increase in cash and cash
equivalents from $554,562 at March 31, 2007 to $15,165,620 at March 30, 2008
resulting from increased sales and increased profits. Our inventories increased
from $1,785,759 at March 31, 2007 to $2,619,429 at March 31, 2008 as a result of
increased sales. At March 31, 2008, we had $835,965 available for
securities sales, compared to none at March 31, 2007. This line item
consists of mutual funds in Hong Kong. Our prepaid expenses increased
from $382,200 at March 31, 2007 to $793,760 at March 31, 2008. The
increase was due to an increase in prepaying inventory
orders. At March 31, 2008, our restricted cash was $37,845,432,
compared to $0 at March 31, 2007.
Our total
liabilities increased from $3,195,557 at March 31, 2007 to $55,687, 992 at March
31, 2008. This increase was primarily due to an increase in deposits
from investors from $0 at March 31, 2007 to $37,845,432 at March 31, 2008 as
well as an increase in unshipped orders.
Our
stockholders’ equity increased from a deficit of $(369,188) at March 31, 2007 to
$1,739,428 at March 31, 2008. This increase was primarily due to an
increase in retained earnings (deficit) from $(374,188) at March 31, 2007 to
$1,895,330 at March 31, 2008.
Our net
sales revenues increased from $14,151,156 for the fiscal year ended March 31,
2007 to $30,249,302 for the fiscal year ended March 31, 2008.
Our
selling, general and administrative (SG&A) costs increased from $1,609,293
for the fiscal year ended March 31, 2007 to $3,693,369 for the fiscal year ended
March 31, 2008. This increase was primarily due to an increase in
costs associated with increased sales.
Our net
operating income increased from $10,052,927 for the fiscal year ended March 31,
2007 to $20,775,301 for the fiscal year ended March 31, 2008. This
increase was primarily due an increase in net sales from $14,151,156 for the
fiscal year ended March 31, 2007 to $30,249,302 for the fiscal year ended March
31, 2008. An increase in costs of goods sold from $5,745,218 for the
fiscal year ended March 31, 2007 to $11,423,852 for the fiscal year ended March
31, 2008 for direct costs associated with increased sales offset net
sales. Gross profits increased from $11,743,220 for the
fiscal year ended March 31, 2007 to $24,468,670 for the fiscal year ended March
31, 2008.
Our net
cash used in operating activities increased from $9,991,418 for the fiscal year
ended March 31, 2007 to $34,237,970 for the fiscal year ended March 31, 2008
primarily due to an increase in other liabilities from $318,080 for the fiscal
year ended March 31, 2007 to $12,372,996. Remaining liabilities
consist of unearned revenue and income taxes payables.
SIX
MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30,
2008
At
September 30, 2008, we had $64,506,249 in total assets, compared to $57,427,420
at March 31, 2008. This increase was due to an increase in
inventories from $2,619,429 at March 31, 2008 to $5,239,693 at September 30,
2008 and Notes Receivable of $22,760,000 at September 30, 2008 compared to $0 at
March 31, 2008 At September 30, 2008, we had $714,874 available
for securities sales, compared to $835,965 at March 31, 2008. Our prepaid
expenses decreased to $262,239 at September 30, 2008 from $793,760 at March 31,
2008.
Our total
liabilities increased from $55,687,992 at March 31, 2008 to $57,150,872 at
September 30, 2008. Deposits from investors increased from
$37,845,432 at March 31, 2008 to $52,279,728 at September 30,
2008. This increase was due to amounts received in our private
placement of Units in a Regulation S offering to Non-U.S
residents. This was offset by a decrease in other liabilities from
$12,787,714 at March 31, 2008 to $3,595,322 at September 30,
2008. Remaining liabilities consist of unearned revenue and income
taxes payables.
Our
stockholders’ equity increased to $7,355,377 at September 30, 2008 from
$1,739,428 at March 31, 2008. This increase was primarily due
to an increase in retained earnings from $1,895,330 at March 31, 2008 to
$7,632,250 at September 30, 2008.
Our net
sales revenues decreased from $14,091,775, for the six months ended September
30, 2007 to $9,420,326 for the six months ended September 30,
2008. Sales were negatively impacted by several occurrences in China,
including earthquakes, floods and the summer Olympics in Beijing which delayed
shipments of products which an increase in inventory and
liabilities.
Our
selling, general and administrative (SG&A) costs increased from $1,019,993
for the six months ended September 30, 2007 to $2,329,916 for the six months
ended September 30, 2008. This decrease was primarily due to
decreased sales.
Our net
operating income decreased from $10,236,466 for the six months ended September
30, 2007 to $5,142,297 for the six months ended September 30,
2008. This decrease was primarily due to decrease in gross profits
from $11,256,459 for the six months ended September 30, 2008 to $7,472,213 for
the six months ended September 30, 2008. Costs of goods sold
decreased from $5,219,514 for the six months ended September 30, 2007 to
$3,311,782 for the six months ended September 30, 2008 due to a decrease in net
sales.
Our net
cash used in operating activities for the six months ended September 30, 2008
were $(9,299,002). Our net cash provided by operating activities were
$9,913,206 for the six months ended September 30, 2007. This decrease in net
cash was primarily due to an increase in other liabilities from $161,474 for the
six months ended September 30, 2008 to $(9,151,696) for the six months ended
September 30, 2008. Other liabilities consist of unearned revenue and
increased other liabilities. The decrease in net cash was also primarily due to
a decrease in unearned revenues from $330,815 for the six months ended September
30, 2007 to $(3,747,070) for the six months ended September 30,
2008.
LIQUIDITY AND CAPITAL
RESOURCES
At
September 30, 2008, we had cash and cash equivalents of $35,328,559 resulting
primarily due our private placement discussed below. We believe that
we have sufficient capital to sustain our operations for the next twelve
months.
In March
2008, the Company received $37,845,432 deposits related to a private placement
of its common stock to non-resident aliens at a purchase price of $3.80 per
Unit. Each Unit consists of one share of Common Stock and one Redeemable Common
Stock Purchase Warrant (the “Warrant”). Each Warrant is exercisable
to purchase one share of Common Stock at $3.80 per share until the second
anniversary date of the date of issuance. The Warrants are redeemable, on a pro
rata basis, by the Company at a purchase price of $0.0001 per share within 30
days from the 10
th
consecutive trading day that the closing sales price, or the average of the
closing bid and asked price in the event that the Company’s Common Stock trades
on the OTC or any public securities market within the U.S., of the Company’s
Common Stock is at least $11.
As of
September 30, 2008, none of the warrant holders have exercised their warrants.
As of September 30, 2008, the Company has used $0 of the net proceeds of sale of
the Units. No Warrants have been redeemed.
The
following is a summary of the Company's cash flows from operating, investing,
and financing activities:
|
For
Six Months Ended
September
30,
|
Item:
|
2008
(Unaudited)
|
2007
(Unaudited)
|
Net
Cash Provided by (Used in) Operating Activities
|
$(9,299,002)
|
$9,913,206
|
Net
Cash Provided by (Used in) Investing Activities
|
$(22,
817,787)
|
$(1,004,802)
|
Net
Cash Provided by (Used in) Financing Activities
|
$52,279,728
|
--
|
Net
Increase (Decrease) in Cash
|
$20,162,939
|
$8,908,404
|
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 the Company’s financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
Quantitative
and Qualitative Disclosures about Market Risk
For our
fiscal year ended March 31, 2008, approximately 100% of our total sales
consisted of sales outside of the United States, with less than 0% of total
sales denominated in currencies other than the United States dollar. In
addition, from time to time we execute intercompany loans with our foreign
subsidiaries that are denominated in foreign currencies.
We are
exposed to foreign currency risks that arise from normal business operations.
These risks include the translation of local currency balances of our Company
and foreign subsidiaries, intercompany loans with foreign subsidiaries and
transactions denominated in foreign currencies. It is our policy not to enter
into derivative financial instruments for speculative purposes. We do not hedge
our exposure to the translation of reported results of our foreign subsidiaries
from local currency to United States dollars. A 10% adverse change in the
underlying foreign currency exchange rates would not be significant to our
financial condition or results of operations.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
Foreign
Currency
The
Company’s reporting currency is the U.S. dollar. The Company’s operation in Hong
Kong uses Hong Kong dollar (HKD) as its functional currency. The financial
statements of the subsidiary are translated into U.S. Dollars (USD) in
accordance with Statement of Financial Accounts Standards (SFAS) No. 52, Foreign
Currency Translation. According to the Statement, all assets and liabilities
were translated at the current exchange rate, stockholders equity are translated
at the historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with SFAS No. 130, Reporting
Comprehensive Income as a Component of Stockholders Equity. Foreign exchange
transaction gains and losses are reflected in the income
statement. During the years 2008 and 2007 there have been immaterial
currency fluctuations between HKD and USD.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less. The Company maintains its accounts in banks, several of which
exceed the federally insured limit.
Available
for sale securities
The
Company’s investments in publicly traded equity securities are classified as
available-for-sale and are reported at fair value (based on quoted prices and
market prices) using the specific identification method. Unrealized gains and
losses, net of taxes, are reported as a component of stockholders’ equity.
Realized gains and losses on investments are included in investment and other
income, net when realized. Any impairment loss to reduce an investment’s
carrying amount to its fair market value is recognized in income when a decline
in the fair market value of an individual security below its cost or carrying
value is determined to be other than temporary.
Inventories
Inventories
are valued at the lower of cost (determined on a first-in, first-out basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to market value, if
lower. Inventory consists of high tech nutritional, cosmetic,
automotive maintenance and environmentally safe products.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of
Machinery
& equipment
|
3
years
|
Computers
& office equipment
|
3
years
|
Automobile
|
5
years
|
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used in accordance with SFAS 144. SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
market value of the long-lived assets. Loss on long-lived assets to be disposed
of is determined in a similar manner, except that fair market values are reduced
for the cost of disposal. Based on its review, the Company believes that, as of
March 31, 2008 there were no significant impairments of its long-lived
assets.
Fair
Value of Financial Instruments
Statement
of Financial Accounting Standard No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company discloses estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the short
term maturity of these instruments.
Revenue
Recognition
The
Company’s revenue recognition policy is in accordance with the requirements of
Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition,
(“SAB 104”), EITF 01-09,
Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
(“EITF 01-09”) and other applicable revenue recognition guidance and
interpretations. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. Cash consideration given by the Company to its sales
affiliates is considered to be a reduction of the selling prices of the
Company's products, thus, is recorded as a reduction of revenue.
Warranty
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. The specific warranty terms and
conditions vary depending upon the product sold, but generally include
replacement over a period of six months. Factors that affect the Company’s
warranty liability include the number of products currently under warranty,
historical and anticipated rates of warranty claims on those products, and cost
per claim to satisfy the warranty obligation. The anticipated rate of warranty
claims is the primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the warranty period is
only six months and replacement is generally already in stock or available at
pre-determined price. Warranty claims are relatively predictable based on
historical experience of failure rates. If actual results differ from the
estimates, the Company revises its estimated warranty
liability
Shipping
Costs
The
Company’s shipping costs are included in cost of sales in the accompanying
Consolidated Statements of Operations and Other Comprehensive Income for all
periods presented.
Advertising
Advertising
expenses consist primarily of costs of promotion for corporate image and product
marketing and costs of direct advertising. The Company expenses all advertising
costs as incurred. For the years ended March 31, 2008 and 2007, advertising
expenses were $1,540 and $595, respectively.
Income
Taxes
The
Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007 The Interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased
disclosures.
Net
Income per Share
Basic net
income per share is computed on the basis of the weighted average number of
common shares outstanding during the period.
Diluted
net income per share is computed on the basis of the weighted average number of
common shares and common share equivalents outstanding. Dilutive securities
having an anti-dilutive effect on diluted net income per share are excluded from
the calculation.
Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
Comprehensive
income
Comprehensive
income is defined as the change in equity of a company during a period from
transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. For the Company,
comprehensive income for the periods presented is comprised of net income and
unrealized loss on marketable securities classified as
available-for-sale.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions, but several of its bank accounts exceed
the federally insured limit. The Company’s accounts receivable is constantly at
a marginal to zero dollar ($0) level and its revenues are derived from orders
place by consumers located anywhere in the world over the Company’s designate
internet portal. The Company maintains a zero dollar ($0) allowance for doubtful
accounts and authorizes credits based upon its historical “sound and quality”
after sales customer services provided to affiliates and customers.
Historically, such customer services have been maintained in accordance with the
management expectations. The Company routinely assesses the credits authorized
to its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
RECENT ACCOUNTING
PRONOUNCEMENTS
In March
2008, FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.
On May 8,
2008, FASB issued Statement of Financial Accounting Standards (SFAS) No. 162,
The Hierarchy of Generally Accepted Accounting Principles, which will provide
framework for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted
accounting principles (GAAP) for nongovernmental entities. With the issuance of
SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from
auditing literature to accounting literature. The Company is currently
assessing the impact of SFAS No. 162 on its financial position and results of
operations.
In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”
(“SFAS 141R”).
SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement is effective for fiscal years beginning on
or after December 15, 2008 and will be applied prospectively. The Company
is currently evaluating the potential impact of the adoption of SFAS 141R
on its consolidated financial position, results of operations or cash
flows.
In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51”
(“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective for fiscal years beginning on
or after December 15, 2008 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. The
Company is currently evaluating the potential impact of the adoption of
SFAS 160 on its consolidated financial position, results of operations or
cash flows.
ITEM
3. PROPERTIES.
Our
principal executive office consists of 6,500 square feet located at Langham
Office Tower, 8 Argyle Street, Suite 3706, Kowloon, Hong Kong SAR which is
leased from a third party for five years for $50,000 per month expiring on March
31, 2012.
We also
lease a 1,700 square foot management office located at the Sino Financial Tower,
14
th
Floor, Wanchai, Hong Kong Island, Hong Kong SAR for $1 per month. This lease
expires on December 31, 2008 and will not be renewed.
We also
lease, through EFT, Inc., a 10,268 square foot facility center in the City of
Industry in California for $9,035 per month pursuant to a lease, dated August 1,
2005, with Lee & Lee. This lease expires on July 31,
2009.
We
believe our properties are sufficient for our current
operations.
ITEM
4. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of
outstanding Common Stock as of the date of this Registration Statement by (i)
each of our directors and executive officers, (ii) all directors and executive
officers as a group, and (iii) each owner of more than 5% of our Common Stock
(5% owners). Except as set forth in the footnotes to this table, the business
address of each director and executive officer listed is c/o EFT BioTech
Holdings, Inc., 929 Radecki Ct., City of Industry,
CA 91789.
Name
of Beneficial Owners
|
Number
of Shares Beneficially Owned
|
Percent
of Shares Outstanding
|
|
(1)
|
(2)
|
Jack
Jie Qin
--President,
Chief Executive Officer and Chairman
|
1,000
|
*
|
Sharon
Tang
--Chief
Financial Officer
|
0
|
--
|
Dr.
Joseph B. Williams
--Chief
Administrative Officer, Secretary and Director
|
300,000
|
*
|
George
W. Curry
--Director
|
300,000
|
*
|
Jun
Qin Liu
--Director
|
51,999,000(3)
|
68.4%
|
All
Officers and Directors as a group
(4
persons)
|
52,600,000
|
69.2%
|
*
Represents less than 1%.
(1)
|
As
used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power
to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with respect
to the security through any contract, arrangement, understanding,
relationship or otherwise, including a right to acquire such power(s)
during the next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment
rights.
|
(2)
|
Based
on 75,983,205 shares of Common Stock issued and outstanding as of the date
of this Registration
Statement.
|
(3)
|
Includes
51,699,000 shares of commons stock held by Dragon Win Management Limited
located at 929 Radecki Ct., City of Industry, CA 91789 of which
Jun Qin Liu has voting and dispositive
control.
|
ITEM
5. DIRECTORS
AND EXECUTIVE OFFICERS
Set forth
below is information regarding the current directors and executive officers of
EFT BioTech Holdings, Inc. The directors are elected annually by stockholders.
The executive officers serve at the pleasure of the board of
directors.
Name:
|
Age:
|
Title:
|
Director
Since:
|
Jack
Jie Qin
|
47
|
President,
Chief Executive Officer and Chairman
(Principal
Executive Officer)
|
November
2007
|
Sharon
Tang
|
49
|
Chief
Financial Officer
(Principal
Financial Officer)
|
--
|
Dr.
Joseph B. Williams
|
67
|
Chief
Administrative Officer, Secretary and Director
|
November
2007
|
George
W. Curry
|
62
|
Chief
Marketing Officer and Director
|
November
2007
|
Jun
Qin Liu
|
45
|
Operation
Manager and Director
|
November
2007
|
Biographies
Jack
Jie Qin
Mr. Qin
has been serving as our President, Chief Executive Officer and Chairman of the
Board of Directors since November 2007. Since January 2004, Mr. Qin
has been serving as the President of EFT BioTech, Inc. From July 1998
to December 2002, Mr. Qin serviced as the President of eFastTeam International,
Inc. located in Los Angeles, California. From June 1992 to December
1997, he served as the President of LA Import & Export Company located in
Los Angeles, California. In May 1991, Mr. Qin earned an MBA from
Emporia State University located in Kansas. In May 1982, Mr. Qin
graduated from Jiangxi Engineering Institute located in Nanchang, China with a
major in Mechanic Engineering.
Sharon
Tang
Sharon
Tang has been serving as our Chief Financial Officer since June
2008. From April 2007 to June 2008, she served as the Chief Financial
Officer of Advanced Battery Technologies, Inc. (NASDAQCM: ABAT) located in
New York City. From May 2006 to April 2007, Ms. Tang served as a
Managing Director of First Federal Group of Companies, Inc. located in New York
City. From February 2006 to May 2006, she served as a Vice President of Crucible
Capital Group, Inc. located in New York City. From April 1998 to February 2006,
she served as a Financial Advisor at Smith Barney, Citigroup in New York City.
Ms. Tang’s professional experience also includes serving as an Associate
Engineer with The Research Institute of Petroleum Exploration and Development,
Ministry of Petroleum in Beijing, China from December 1983 to July 1986 and
Assistant Professor at the Peking Business College in Beijing, China from
January 1983 to December 1983. Ms. Tang holds a
MBA from Baruch College in New York City (June 2005),
Master of Science in Chemical Engineering from the University of Rochester in
New York, NY (1988) and a Bachelor of Science in Chemistry from Peking
University in Beijing, China (1982) Ms. Tang holds Series 7 and 63
licenses from FINRA.
Dr.
Joseph B. Williams
Dr.
Williams has been services as our Chief Administrative Officer and Secretary
since June 2008 and as a Director since November 2007. Dr. Williams
served as our Chief Financial Officer from February 2008 to June
2008. Before his employment with the Company, Mr. Williams served as
a consultant for the Company for seven months in the fiscal year ended March 31,
2008. Dr. Williams possesses over 35 years experience in US and International
Management. From 2001 to June 2007, Dr. Williams acted in an advisory
role to over 50 start-up companies as well as the President of Williams &
Company. From 2000 to 2001, Dr. Williams served as the President and CFO of
Advantage Marketing Systems (a publicly traded company). From 1996 to
2000, Dr. Williams served as the Vice President (International) of Jeunique
International, (a privately held company). Dr. Williams holds a
BBA degree, an MS in Management and a Doctorate in International
Management.
George
W. Curry
Mr. Curry
has been serving as our Chief Marketing Officer and as a Director since November
2007. From 1996 to October 2007, Mr. Curry served as a sales representative of
Mayor Pharmaceutical Labs, Inc. where he marketed products directly to the
public and recruited and trained additional sales people. He also
served as a motivational speaker at company training seminars throughout the
U.S. From 1992 to 1995, Mr. Curry owned Continental Limited, an
import export business focused on the clothing industry. In 1968, Mr. Curry
earned a Bachelor in Business Administration (BBA) from the University of North
Texas with a major in Marketing.
Jun
Qin Liu
Ms. Liu
has been serving as our Operation Manager and as a Director since November
2007. Since January 2003, Ms. Liu has been serving as the President
of EFT USA. From August 2002 to December 2002, Ms. Liu served in the
administration staff of eFastTeam International, Inc. located in Los Angeles,
California. From July 1995 to September 2000, she served in the
administration staff of China National Medical Equipment and Supplies I/E Corp.
located in Foshan, China. In July 1984, Ms. Liu graduated from
Jiangxi Teacher’s College located in Jiangxi, China with a major in
English.
Legal/Disciplinary
History
None of
our executive officers or directors has been the subject of:
1.
|
A
conviction in a criminal proceeding or named as a defendant in a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
|
2.
|
The
entry of an order, judgment or decree, not subsequently reversed,
suspended or vacated, by a court of competent jurisdiction that
permanently or temporarily enjoined, barred, suspended or otherwise
limited such person’s involvement in any type of business, securities,
commodities, or banking activities;
|
3.
|
A
finding or judgment by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, the Commodity Futures
Trading Commission, or a state securities regulator of a violation of
federal or state securities or commodities law, which finding or judgment
has not been reversed, suspended, or vacated;
or
|
4.
|
The
entry of an order by a self-regulatory organization that permanently or
temporarily barred, suspended or otherwise limited such party’s
involvement in any type of business or securities
activities.
|
Family/Certain
Relationships
There are
no relationships existing among and between the issuer’s officers and
directors.
Employment
Agreements
We
currently do not have any employment agreements other than with Ms. Sharon
Tang.
Ms.
Sharon Tang serves as our Chief Financial Officer pursuant to an Employment
Agreement, dated May 1, 2008. The employment agreement commenced on
June 1, 2008 and expires on June 1, 2013, unless terminated earlier by either
party pursuant to the terms of the employment agreement. Ms.
Tang’s compensation is $120,000 per year payable in equal monthly installments
with 10% annual increases for each subsequent year. She is also
entitled to common stock of the Company as determined by the Company’s board of
directors.
ITEM
6. EXECUTIVE
COMPENSATION
The table
below summarizes the compensation we have paid our Named Executive Officers in
the last two fiscal years.
SUMMARY
COMPENSATION TABLE
Name
and
Principal
Position
|
Fiscal
Year Ended March 31,
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Plan
Comp
|
Non-Equity
Incentive
Comp
|
Non-Qualified
Comp
Earnings
|
Other
Comp
|
Total
|
Jack
Jie Qin (President, CEO and Chairman)
(Principal
Executive Officer)
|
2008
|
$300,000(1)
|
$0
|
$1(2)
|
$0
|
$0
|
$0
|
$0
|
$0
|
$300,001
|
2007
|
$18,750
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$18,750
|
Dr.
Joseph B Williams
(Former
Chief Financial Officer, Current Chief Administrative Officer, Secretary
and Director)(3)
|
2008
|
$100,000
|
$0
|
$300(4)
|
$0
|
$0
|
$0
|
$0
|
$0
|
$100,300
|
2007
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
Jun
Qin Liu
(Operation
Manager and Director)
|
2008
|
$100,000
|
$0
|
$300(5)
|
$0
|
$0
|
$0
|
$0
|
$0
|
$100,300
|
2007
|
$18,00
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$18,000
|
Tony
So
(Former
President)(6)
|
2008
|
$100,000
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$100,000
|
2007
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
$0
|
|
(2)
|
1,000
shares at $0.001 per share
|
|
(3)
|
Dr.
Williams served as the Chief Financial Officer from February 2008 to June
2008. Mr. Williams served as a consultant to the Company for
seven months in the fiscal year ended March 31, 2008 at $10,000 month and
as an employee for three months in the fiscal year ended March 31,
2008.
|
|
(4)
|
300,000
shares at $0.001 per share
|
|
(5)
|
300,000
shares at $0.001 per share
|
|
(6)
|
Tony
So resigned from the Company in September
2008.
|
Board
Committees
In light
of the current size of the Board of Directors, the Company’s Board of Directors
has not established a standing Audit Committee, Compensation/Nominating
Committee or any other committee but intends to do so in the
future. Currently, our Board serves as the Audit Committee and
Compensation/Nominating Committee and none of the directors are
independent. The Company has not appointed separately standing
committees due to the fact that a majority of the Company’s operations are
located in China and Hong Kong and the Company desires to keep overhead expenses
to a minimum.
Financial
Expert
The Board
has designated Ms. Sharon Tang as the Board’s “financial expert” as that term is
defined in Section 407 of The Sarbanes Oxley Act of 2002.
Director
Compensation
Directors
are reimbursed for their out-of-pocket expenses incurred in connection with
attending board meetings. In the fiscal year ended March 31, 2008, the Company
reimbursed the directors an aggregate of $5,000 for such expenses.
Code
of Ethics
We
currently have a Code of Ethics for our directors and principal executive
officers. The Code of Ethics is filed as Exhibit 14.1 to this
Registration Statement on Form 10.
Options
To date
the Company has not issued any options to its executive officer, directors or
employees.
ITEM
7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other
than described herein, there have been no transactions or series of transactions
which would be required to be disclosed under Rule 404 of Regulation
S-K.
Director Independence
None of
our directors are deemed to be independent.
ITEM
8. LEGAL
PROCEEDINGS
We are
not a party to nor are we threatened with or have any knowledge of any claims or
legal actions that would have a material adverse impact on our financial
position, operations or potential performance.
ITEM
9. MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY
AND
RELATED STOCKHOLDER MATTERS
Our
Common Stock
As of the
date of this Registration Statement, our common stock has been listed for
trading on the Pink OTC Markets Inc. (the “Pink Sheets”) under the ticker symbol
“EFTB.” As of the date of this Registration Statement, there are
75,983,205 shares of common stock issued and outstanding. The Company’s current
public float is 23,383,205 shares of Common Stock and last sale price of the
Company’s Common Stock as of the close of business on December 9, 2008, as
reported on the Pink Sheets, was $3.70. Stocks traded on the Pink Sheets are
usually thinly traded, highly volatile, and not followed by analysts. Investors
in our common stock may experience a loss or liquidity problem with their share
holdings.
Upon the
effectiveness of this Registration Statement on Form 10, Buckman, Buckman &
Reid, Inc. intends to file an application with FINRA for authorization to act as
a market maker of our common stock on the OTC Bulletin
Board. Buckman, Buckman & Reid, Inc. served as the placement
agent of our Units in the Regulation S Offering commenced on April 25, 2008
which expired on October 25, 2008.
The
holders of the Company’s common stock are entitled to one vote per share. The
common stock holders do not have preemptive rights to purchase, subscribe for,
or otherwise acquire any shares of common stock.
The
ability of individual stockholders to trade their shares in a particular state
may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to register
its securities in any particular state.
If we
fail to continue to meet certain SEC standards, our common stock may become
subject to the “penny stock” rules under the provisions of Section 15(g) and
Rule 15g- 9 of the Exchange Act, commonly referred to as the "penny stock"
rule. Section 15(g) sets forth certain requirements
for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange
Act.
Penny Stock
Rules
The term
“penny stock” generally refers to low-priced (below $5.00), speculative
securities of very small companies. While penny stocks generally are quoted
over-the-counter, such as on the OTC Bulletin Board or in the Pink Sheets, they
may also trade on securities exchanges, including foreign securities exchanges.
In addition, penny stocks include the securities of certain private companies
with no active trading market.
Before a
broker-dealer can sell a penny stock, SEC rules require the firm to first
approve the customer for the transaction and receive from the customer a written
agreement to the transaction. The firm must furnish the customer a document
describing the risks of investing in penny stocks. The firm must tell the
customer the current market quotation, if any, for the penny stock and the
compensation the firm and its broker will receive for the trade. Finally, the
firm must send monthly account statements showing the market value of each penny
stock held in the customer’s account.
Penny
stocks may trade infrequently, which means that it may be difficult to sell
penny stock shares once you own them. Because it may be difficult to find
quotations for certain penny stocks, they may be impossible to accurately price.
Investors in penny stocks
should be prepared for the possibility that they may lose their whole
investment.
The
Company’s fiscal year end is March 31
st
. The
range of high and low bid information for our common stock on the Pink Sheets
for each quarterly period within the two most recent fiscal years is set forth
below. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
There was no active trading market for our common stock during the period
reflected below:
Fiscal Period
|
Low Bid
|
High Bid
|
|
|
|
2008
|
|
|
3
rd
Quarter (as of December 9, 2008)
|
$3.70
|
$3.80
|
2
nd
Quarter Ended September 30, 2008
|
$3.90
|
$3.95
|
1
st
Quarter Ended June 30, 2008
|
$5.25
|
$5.25
|
|
|
|
2007
|
|
|
4
th
Quarter Ended March 31, 2008
|
$5.45
|
$5.30
|
3
rd
Quarter Ended December 31, 2007
|
$4.15
|
$4.50
|
2
nd
Quarter Ended September 30, 2007
|
N/A
|
N/A
|
1
st
Quarter Ended June 30, 2007
|
N/A
|
N/A
|
Dividend
Policy
For the
fiscal year ended March 31, 2008 and 2007, approximately $18.5 million and $10.4
million in dividends were paid to the stockholders of EFT BioTech before the
merger.
We
currently intend to retain all future earnings for use in the operation and
expansion of our business and do not anticipate paying any cash dividends on
common stock in the foreseeable future. Any future dividends will be at the
discretion of the board of directors, after taking into account various factors,
including among others, operations, current and anticipated cash needs and
expansion plans, the income tax laws then in effect, the requirements of Nevada
law, and any restrictions that may be imposed by our future credit
arrangements.
Transfer
Agent
Our
transfer agent is:
Standard
Registrar and Transfer Company, Inc.
12528
South 1840 East
Draper,
UT 84020
Phone:
(801)
571-8844
Fax:
(801)
571-2551
Email: investors@amsrcorp.com
ITEM
10. RECENT SALES OF UNREGISTERED SECURITIES
From time
to time, the Company has issued shares of common stock to its executive officers
in consideration of services rendered by such individuals to the
Company. The Company has issued these securities pursuant to the
exemptions from the registration requirements of the Securities Act of 1933, as
amended, afforded the Company under Section 4(2) promulgated thereunder due to
the fact that such issuances did not involve a public offering of
securities.
In March
2008, we commenced a “best efforts” private placement of up to ten million
(10,000,000) Units, exclusively to non-U.S. residents at a purchase price of
$3.80 per Unit under the exemption of the registration requirements of the
Securities Act of 1933, as amended, afforded the Company under Regulation S
thereunder due to the fact that offers and sales were only made to non US
residents.
Each Unit
consists of one share of Common Stock and one Redeemable Common Stock Purchase
Warrant (the “Warrant”). Each Warrant is exercisable to purchase one
share of Common Stock at $3.80 per share until the second anniversary date of
the date of issuance. The Warrants are redeemable, on a pro rata basis, by the
Company at a purchase price of $0.0001 per share within 30 days from the 10
th
consecutive trading day that the closing sales price, or the average of the
closing bid and asked price in the event that the Company’s Common Stock trades
on the OTC or any public securities market within the U.S., of the Company’s
Common Stock is at least $11. Buckman, Buckman & Reid, Inc. served as the
placement agent of the Units (“Buckman” or the “Placement Agent”).
The
private placement terminated on October 15, 2008. As of such date, the Company
has sold an aggregate of 14,890,040 Units for net proceeds of $56,582,152
consisting of a total of 14,890,040 shares of Common Stock and 14,890,040
Warrants. As of September 30, 2008, none of the warrant holders have exercised
their warrants.
As of
September 30, 2008, the Company has used $22,760,000 of the net proceeds of sale
of the Units for a loan. No Warrants have been exercised or
redeemed.
The table
below sets forth management’s currently planned allocation of the net proceeds
of the offering.
Proceeds
from Sale of Units
|
Category:
|
Amount
(USD$):
|
Percentage
of Net Proceeds:
|
Loan
|
$22,760,000
|
40%
|
Marketing
Development
|
$20,000,000
|
35%
|
Business
Development
|
$13,822,152
|
25%
|
TOTAL
|
$56,582,152
|
100%
|
The
allocation of the net proceeds of the Offering set forth above represents our
best estimate based upon our present plans and certain assumptions regarding
general economic and industry conditions and our future revenues and
expenditures. We reserve the right to reallocate these proceeds within the
above-mentioned categories or to other purposes if management believes it is in
our best interests. We will not however use any of the net proceeds to pay any
debt or other obligations owed to any party or management without the consent of
the Placement Agent.
ITEM
11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
The
following description of certain matters relating to our securities does not
purport to be complete and is subject in all respects to applicable Nevada law
and to the provisions of our certificate of incorporation (“Certificate of
Incorporation”) and By-laws (the “By-Laws”).
Common
Stock
We are
authorized to issue 4,975,000,000 shares of Common Stock, $0.0001 par value. As
of the date of this Registration Statement, there were 61,089,081 shares of
Common Stock outstanding. Each share of our Common Stock is entitled to one vote
at all meetings of our stockholders. Our stockholders are not permitted to
cumulate votes in the election of directors. All shares of our Common Stock are
equal to each other with respect to liquidation rights and dividend rights.
There are no preemptive rights to purchase any additional shares of our Common
Stock. In the event of our liquidation, dissolution or winding up, holders of
our Common Stock will be entitled to receive, on a pro rata basis, all of our
assets remaining after satisfaction of all liabilities and preferences of
outstanding preferred stock, if any. Neither our Certificate of Incorporation
nor our By-Laws contain any provisions which limit or restrict the ability of
another person to take over our company.
As of
December 9, 2008, there were 29,821 shareholders of record. Of the
75,983,205 shares of Common Stock outstanding, 66,226,216 are restricted and
cannot be resold unless registered under the Securities Act or pursuant to an
exemption thereto.
Preferred
Stock
We are
also authorized to issue 25,000,000 shares of Preferred Stock, $0.001 par value,
none of which are outstanding.
The Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of our Common
Stock.
ITEM
12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our
Certificate of Incorporation provides that we are required to indemnify an
officer, director, or former officer or director, to the full extent permitted
by Section 78.7502 of the Nevada Revised Statutes 2005, provided that the person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interests of the company. We have been advised that, in the opinion
of the SEC, indemnification for liabilities arising under the Securities Act is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers, or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our legal counsel, submit the question of whether such
indemnification is against public policy to a court of appropriate
jurisdiction.
ITEM
13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
Company’s audited financial statements for the years ended March 31, 2008 and
2007 and the notes thereto and the unaudited financial statements for the six
months ended September 30, 2008 and 2007 and notes thereto are included after
the Signature Page of this Registration Statement on Form 10 and are
incorporated by reference herein.
ITEM
14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
None
ITEM
15. FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial Statements filed as part
of this Registration Statement
:
The
Company’s audited financial statements for the years ended March 31, 2008 and
2007 and the notes thereto and the unaudited financial statements for the six
months ended September 30, 2008 and 2007 and notes thereto are included after
the Signature Page of this Registration Statement on Form 10 and are
incorporated by reference herein.
(b)
Exhibits
:
Exhibit No.:
|
Description:
|
|
|
3.1
|
Articles
of Incorporation of GRG, Inc. (now EFT BioTech Holdings,
Inc.).
|
3.1.1
|
Articles
of Merger filed December 28, 2004 between HumWare Media Corporation, World
Wide Golf Web, Inc. and GRG, Inc.
|
3.1.2
|
Certificate
of Amendment, effective November 7, 2007, to the Articles of
Incorporation of HumWare Media Corporation
|
3.2
|
By-laws
|
4.1
|
Form
of Common Stock Certificate
|
4.2
|
Form
of Warrant to purchase one share of Common Stock for a purchase price of
$3.80 per share until the second anniversary date of the date of
issuance
|
10.1
|
Share
Exchange Agreement, dated as of the 1
st
day of November, 2007, by and among EFT BioTech Holdings, Inc. (formerly
HumWare Media Corporation), a Nevada corporation; certain EFT Shareholders
and EFT BioTech Corporation, a Nevada corporation
|
21.1
|
Subsidiaries
of the Registrant
|
23.1
|
Consent
of Sharon Tang to be named as “financial expert” of the Board of Directors
of the
Company
|
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities and Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
EFT
BIOTECH HOLDINGS, INC.
|
Date:
December 10, 2008
|
|
By:
/s/ Jack Jie
Qin
Name:
Jack Jie Qin
Title:
President, Chief Executive Officer and Chairman
(Principal
Executive Officer)
|
|
|
|
|
|
|
Douglas W. Child, CPA
Marty D. Van Wagoner, CPA
J. Russ Bradshaw, CPA
William R. Denney, CPA
Roger B. Kennard, CPA
Russell E. Anderson, CPA
Scott L. Farnes
EFT
BIOTECH HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31, 2008 AND 2007
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Page(s)
|
|
|
Audited
Consolidated Financial Statements
|
|
|
|
Consolidated
Balance Sheets
|
F-1
|
|
|
Consolidated
Statements of Operations and Other Comprehensive Income
|
F-2
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
F-3
|
|
|
Consolidated
Statements of Cash Flows
|
F-4
|
|
|
Notes
to Consolidated Financial Statements
|
F-5
|
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
As
of March 31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
15,165,620
|
|
|
$
|
554,562
|
|
Inventories
|
|
|
2,619,429
|
|
|
|
1,785,759
|
|
Available
for sale securities
|
|
|
835,965
|
|
|
|
-
|
|
Prepaid
expenses
|
|
|
793,760
|
|
|
|
382,200
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
19,414,774
|
|
|
|
2,722,521
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
140,106
|
|
|
|
76,740
|
|
Restricted
cash
|
|
|
37,845,432
|
|
|
|
-
|
|
Security
deposit
|
|
|
27,108
|
|
|
|
27,108
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
57,427,420
|
|
|
$
|
2,826,369
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
804,041
|
|
|
$
|
306,416
|
|
Other
liabilities
|
|
|
12,787,714
|
|
|
|
377,806
|
|
Unearned
revenues
|
|
|
3,945,805
|
|
|
|
2,511,335
|
|
Deposits
from investors
|
|
|
37,845,432
|
|
|
|
-
|
|
Income
tax payable
|
|
|
305,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
55,687,992
|
|
|
|
3,195,557
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 25,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
none
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value, 4,975,000,000 authorized,
|
|
|
|
|
|
|
|
|
61,022,414
and 59,821,414 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
March 31, 2008 and 2007
|
|
|
6,102
|
|
|
|
5,982
|
|
Additional
paid in capital
|
|
|
1,060
|
|
|
|
(982
|
)
|
Retained
earnings (deficit)
|
|
|
1,895,330
|
|
|
|
(374,188
|
)
|
Accumulated
other comprehensive loss
|
|
|
(163,064
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficit)
|
|
|
1,739,428
|
|
|
|
(369,188
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
57,427,420
|
|
|
$
|
2,826,369
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Statements of Operations and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
|
|
|
|
|
Sales
revenues, net
|
|
$
|
30,249,302
|
|
|
$
|
14,151,156
|
|
Shipping
charge
|
|
|
10,110,360
|
|
|
|
5,693,620
|
|
|
|
|
40,359,662
|
|
|
|
19,844,776
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
11,423,852
|
|
|
|
5,745,218
|
|
Shipping
cost
|
|
|
4,467,140
|
|
|
|
2,356,338
|
|
|
|
|
15,890,992
|
|
|
|
8,101,556
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
24,468,670
|
|
|
|
11,743,220
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,693,369
|
|
|
|
1,690,293
|
|
|
|
|
|
|
|
|
|
|
Net
operating income
|
|
|
20,775,301
|
|
|
|
10,052,927
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
275,538
|
|
|
|
22,819
|
|
Foreign
exchange loss
|
|
|
(4,248
|
)
|
|
|
(2,997
|
)
|
Other
expense, net
|
|
|
54,904
|
|
|
|
(8,256
|
)
|
|
|
|
|
|
|
|
|
|
Total
other income
|
|
|
326,194
|
|
|
|
11,566
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
21,101,495
|
|
|
|
10,064,493
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
305,800
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
20,795,695
|
|
|
$
|
10,063,293
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available for sale securities
|
|
|
(163,064
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
20,632,631
|
|
|
$
|
10,063,293
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.34
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
60,277,531
|
|
|
|
59,821,414
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
APRIL 1, 2006
|
|
|
59,821,414
|
|
|
$
|
5,982
|
|
|
$
|
(982
|
)
|
|
$
|
1,563
|
|
|
$
|
-
|
|
|
$
|
6,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,063,293
|
|
|
|
-
|
|
|
|
10,063,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,439,044
|
)
|
|
|
-
|
|
|
|
(10,439,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2007
|
|
|
59,821,414
|
|
|
|
5,982
|
|
|
|
(982
|
)
|
|
|
(374,188
|
)
|
|
|
-
|
|
|
|
(369,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for services
|
|
|
1,201,000
|
|
|
|
120
|
|
|
|
2,042
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,795,695
|
|
|
|
-
|
|
|
|
20,795,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,526,177
|
)
|
|
|
-
|
|
|
|
(18,526,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available for sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(163,064
|
)
|
|
|
(163,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
MARCH 31, 2008
|
|
|
61,022,414
|
|
|
$
|
6,102
|
|
|
$
|
1,060
|
|
|
$
|
1,895,330
|
|
|
$
|
(163,064
|
)
|
|
$
|
1,739,428
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
20,795,695
|
|
|
$
|
10,063,293
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
38,340
|
|
|
|
22,192
|
|
Warranty
liability
|
|
|
36,912
|
|
|
|
48,696
|
|
Stock
based compensation
|
|
|
2,162
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(833,670
|
)
|
|
|
(1,785,759
|
)
|
Prepaid
expenses
|
|
|
(411,560
|
)
|
|
|
(312,120
|
)
|
Accounts
payable and accrued liabilities
|
|
|
497,625
|
|
|
|
306,416
|
|
Other
liabilities
|
|
|
12,372,996
|
|
|
|
318,080
|
|
Unearned
revenues
|
|
|
1,434,470
|
|
|
|
1,330,620
|
|
Income
tax payable
|
|
|
305,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
34,237,970
|
|
|
|
9,991,418
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions
to fixed assets
|
|
|
(101,706
|
)
|
|
|
(3,930
|
)
|
Purchase
of available for sale securities
|
|
|
(999,029
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) investing activities
|
|
|
(1,100,735
|
)
|
|
|
(3,930
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
(37,845,432
|
)
|
|
|
-
|
|
Proceeds
from investor deposits
|
|
|
37,845,432
|
|
|
|
-
|
|
Payment
of dividends
|
|
|
(18,526,177
|
)
|
|
|
(10,439,044
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(18,526,177
|
)
|
|
|
(10,439,044
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
14,611,058
|
|
|
|
(451,556
|
)
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
554,562
|
|
|
|
1,006,118
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
15,165,620
|
|
|
$
|
554,562
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid in cash
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes paid in cash
|
|
$
|
800
|
|
|
$
|
1,200
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Unrealized
loss on available for sale securities
|
|
$
|
163,064
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
Note
1 -
ORGANIZATION
EFT
Biotech Holdings, Inc. (“EFT Holdings” or “the Company”), formerly HumWare Media
Corporation, GRG, Inc., Ghiglieri Corporation, Karat Productions, Inc., was
incorporated in the State of Nevada on March 19, 1992.
On
November 18, 2007, the Company issued an aggregate of 53,300,000 shares of its
common stock in connection with a share exchange with the stockholders of EFT
BioTech, Inc. (“EFT BioTech”), a Nevada Corporation formed on September 18, 2007
(the “Transaction”), pursuant to which EFT BioTech became a wholly-owned
subsidiary of the Company. The 53,300,000 common shares issued represented
approximately 87.01% of the Company’s common stock outstanding after the
Transaction. Consequently, the stockholders of EFT BioTech, Inc. own a majority
of the Company's common stock immediately following the Transaction, therefore,
the Transaction is being accounted for as a "reverse acquisition", and EFT
BioTech is deemed to be the accounting acquirer in the reverse
acquisition.
The
Company is a holding company and conducts its business through the operations of
EFT BioTech and EFT BioTech’s wholly-owned subsidiary, EFT Limited, a British
Virgin Islands company (“BVI”). EFT Limited (BVI) has four
wholly-owned subsidiaries: EFT, Inc., Top Capital, Ltd. (BVI), EFT (HK), Ltd.
and EFT International Ltd. (BVI).
The
Company, through its subsidiaries, is engaged in the E-Business designed around
the concept of Business-to-customer using the World Wide Web as its “storefront”
and business platform to market, sell and distribute 43 American brand products
consisting of 22 nutritional products, 18 personal care products, 2 automotive
fuel additives, 1 home product and a portable drinking container.
Note
2 -
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America.
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
Foreign
Currency
The
Company’s reporting currency is the U.S. dollar. The Company’s operation in Hong
Kong uses Hong Kong dollar (HKD) as its functional currency. The financial
statements of the subsidiary are translated into U.S. Dollars (USD) in
accordance with Statement of Financial Accounts Standards (SFAS) No. 52, Foreign
Currency Translation. According to the Statement, all assets and liabilities
were translated at the current exchange rate, stockholders equity are translated
at the historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with SFAS No. 130, Reporting
Comprehensive Income as a Component of Stockholders Equity. Foreign exchange
transaction gains and losses are reflected in the income
statement. During the years 2008 and 2007 there have been immaterial
currency fluctuations between HKD and USD.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash
Equivalents
Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less. The Company maintains its accounts in banks, several of which
exceed the federally insured limit. In aggregate, approximately $51.5 million
were out of federally insured limit.
Available for sale
securities
The
Company’s investments in publicly traded equity securities are classified as
available-for-sale and are reported at fair value (based on quoted prices and
market prices) using the specific identification method. Unrealized gains and
losses, net of taxes, are reported as a component of stockholders’ equity.
Realized gains and losses on investments are included in investment and other
income, net when realized. Any impairment loss to reduce an investment’s
carrying amount to its fair market value is recognized in income when a decline
in the fair market value of an individual security below its cost or carrying
value is determined to be other than temporary.
Inventories
Inventories
are valued at the lower of cost (determined on a first-in, first-out basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to market value, if
lower. Inventory consists of high tech nutritional,
cosmetic, automotive maintenance and environmentally safe products.
Property and
equipment
Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of:
Machinery
& equipment
|
3
years
|
Computers
& office equipment
|
3
years
|
Automobile
|
5
years
|
For the
years ended March 31, 2008 and 2007, depreciation expenses were $38,340 and
$22,192, respectively.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used in accordance with SFAS 144. SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
market value of the long-lived assets. Loss on long-lived assets to be disposed
of is determined in a similar manner, except that fair market values are reduced
for the cost of disposal. Based on its review, the Company believes that, as of
March 31, 2008 there were no significant impairments of its long-lived
assets.
Fair Value of Financial
Instruments
Statement
of Financial Accounting Standard No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company discloses estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the short
term maturity of these instruments.
Revenue
Recognition
The
Company’s revenue recognition policy is in accordance with the requirements of
Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition,
(“SAB 104”), EITF 01-09,
Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
(“EITF 01-09”) and other applicable revenue recognition guidance and
interpretations. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. Cash consideration given by the Company to its sales
affiliates is considered to be a reduction of the selling prices of the
Company's products, thus, is recorded as a reduction of revenue.
Warranty
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. The specific warranty terms and
conditions vary depending upon the product sold, but generally include
replacement over a period of six months. Factors that affect the Company’s
warranty liability include the number of products currently under warranty,
historical and anticipated rates of warranty claims on those products, and cost
per claim to satisfy the warranty obligation. The anticipated rate of warranty
claims is the primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the warranty period is
only six months and replacement is generally already in stock or available
at pre-determined price. Warranty claims are relatively predictable based on
historical experience of failure rates. If actual results differ from the
estimates, the Company revises its estimated warranty
liability.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Shipping
Costs
The
Company’s shipping costs are included in cost of sales in the accompanying
Consolidated Statements of Operations and Other Comprehensive Income for all
periods presented.
Advertising
Advertising
expenses consist primarily of costs of promotion for corporate image and product
marketing and costs of direct advertising. The Company expenses all advertising
costs as incurred. For the years ended March 31, 2008 and 2007, advertising
expenses were $1,540 and $595, respectively.
Income
Taxes
The
Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007 The Interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased
disclosures.
Net Income Per
Share
Basic net
income per share is computed on the basis of the weighted average number of
common shares outstanding during the period.
Diluted
net income per share is computed on the basis of the weighted average number of
common shares and common share equivalents outstanding. Dilutive securities
having an anti-dilutive effect on diluted net income per share are excluded from
the calculation.
Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
Comprehensive
income
Comprehensive
income is defined as the change in equity of a company during a period from
transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. For the Company,
comprehensive income for the periods presented is comprised of net income and
unrealized loss on marketable securities classified as
available-for-sale.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Concentration of Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions, but several of its bank accounts exceed
the federally insured limit. The Company’s accounts receivable is constantly at
a marginal to zero dollar ($0) level and its revenues are derived from orders
place by consumers located anywhere in the world over the Company’s designate
internet portal. The Company maintains a zero dollar ($0) allowance for doubtful
accounts and authorizes credits based upon its historical “sound and quality”
after sales customer services provided to affiliates and customers.
Historically, such customer services have been maintained in accordance with the
management expectations. The Company routinely assesses the credits authorized
to its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
Recent accounting
pronouncements
In March
2008, FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.
On May 8,
2008, FASB issued Statement of Financial Accounting Standards (SFAS) No. 162,
The Hierarchy of Generally Accepted Accounting Principles, which will provide
framework for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted
accounting principles (GAAP) for nongovernmental entities. With the issuance of
SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from
auditing literature to accounting literature. The Company is currently
assessing the impact of SFAS No. 162 on its financial position and results of
operations.
In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”
(“SFAS 141R”).
SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement is effective for fiscal years beginning on
or after December 15, 2008 and will be applied prospectively. The Company
is currently evaluating the potential impact of the adoption of SFAS 141R
on its consolidated financial position, results of operations or cash
flows.
In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51”
(“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective for fiscal years beginning on
or after December 15, 2008 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. The
Company is currently evaluating the potential impact of the adoption of
SFAS 160 on its consolidated financial position, results of operations or
cash flows.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Note
3 -
FINANCIAL
INSTRUMENTS
Disclosures about Fair Value
of Financial Instruments
Statement
of financial accounting standard No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company discloses estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the short
term maturity of these instruments. The fair value of investments has been
estimated based on quoted market prices, which the Company currently believes
are indicative of fair value.
Investments
The following table
summarizes the fair value and cost of the Company’s investments. The Company’s
investments are mainly on equity securities mutual funds.
|
|
March
31, 2008
|
|
|
March
31, 2007
|
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Unrealized
(Loss)
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Unrealized
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
835,965
|
|
|
$
|
999,029
|
|
|
$
|
(163,064
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments
|
|
|
835,965
|
|
|
|
999,029
|
|
|
|
(163,064
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Short-term
|
|
|
835,965
|
|
|
|
999,029
|
|
|
|
(163,064
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Investments
|
|
$
|
835,965
|
|
|
$
|
999,029
|
|
|
$
|
(163,064
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note
4 –
PROPERTY AND
EQUIPMENT
Property
and equipment consist of the following:
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
176,384
|
|
|
$
|
108,775
|
|
Computer
equipment
|
|
|
22,068
|
|
|
|
-
|
|
Machinery
and equipment
|
|
|
15,959
|
|
|
|
3,930
|
|
|
|
|
214,411
|
|
|
|
112,705
|
|
Less:
Accumulated depreciation
|
|
|
(74,305
|
)
|
|
|
(35,965
|
)
|
|
|
$
|
140,106
|
|
|
$
|
76,740
|
|
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Note
5 –
OTHER
LIABILITIES
Other
liabilities consist of the following:
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Commission
payable
|
|
$
|
12,028,644
|
|
|
$
|
-
|
|
Payroll
liabilities
|
|
|
671,409
|
|
|
|
322,950
|
|
Warranty
liability
|
|
|
85,608
|
|
|
|
48,696
|
|
Other
|
|
|
2,053
|
|
|
|
6,160
|
|
|
|
$
|
12,787,714
|
|
|
$
|
377,806
|
|
Note
6 –
STOCKHOLDERS’
EQUITY
Common
stock
As of
March 31, 2008 the Company has 4,975,000,000 shares of common stock authorized
and 61,022,414 shares issued and outstanding at par value $0.0001 per
share.
Dividend
For the
years ended March 31, 2008 and 2007, approximately $18.5 million and $10.4
million dividends were paid to the stockholders of EFT BioTech before the
merger.
Deposits from investors and
restricted cash
In March
2008, The Company received $37,845,432 deposits related to a private placement
of its common stock to non-resident aliens at a purchase price of $3.80 per
unit, for a unit consisting of one share of common stock and one common stock
redeemable purchase warrant. The private placement offering will terminate on
October 25, 2008.
Note
7 -
INCOME
TAXES
The
Company was incorporated in the United States of America (“US”) and has
operations in three tax jurisdictions - the United States of America, the Hong
Kong Special Administrative Region (“HK SAR”) and the BVI. The Company generated
substantially all of its net income from its BVI operations for the years ended
March 31, 2008 and 2007 which are not subject to any tax provision
according to BVI tax law. The Company’s HK SAR subsidiaries had no taxable
income in the respective periods. The deferred tax assets for the Company’s US
operations and HK SAR subsidiaries were immaterial at March 31, 2008 and
2007.
The
income tax expenses consist of the following:
|
|
Years
Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Domestic
|
|
$
|
305,800
|
|
|
$
|
1,200
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Income
tax expenses
|
|
$
|
305,800
|
|
|
$
|
1,200
|
|
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Uncertain Tax
Positions
As a
result of the implementation of Interpretation 48, the Company recognized no
material adjustments to liabilities or stockholders’ equity. Interest associated
with unrecognized tax benefits are classified as income tax and penalties are
classified in selling, general and administrative expenses in the statements of
operations. The adoption of FIN 48 did not have a material impact on the
Company’s financial statements.
For the
years ended March 31, 2008 and 2007, the Company had no unrecognized tax
benefits and related interest and penalties expenses. Currently, the
Company is not subject to examination by major tax jurisdictions.
Note
8 -
WARRANTY
LIABILITY
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. Changes in warranty liability
for standard warranties which are included in current liabilities on the
Company’s Consolidated Balance Sheets are presented in the following
tables:
|
|
Years
Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Warranty
liability at beginning of year
|
|
$
|
48,696
|
|
|
$
|
-
|
|
Costs
accrued
|
|
|
36,912
|
|
|
|
48,696
|
|
Service
obligations honored
|
|
|
-
|
|
|
|
-
|
|
Warranty
liability at end of year
|
|
$
|
85,608
|
|
|
$
|
48,696
|
|
Current
portion
|
|
$
|
85,608
|
|
|
$
|
48,696
|
|
Non-current
portion
|
|
|
-
|
|
|
|
-
|
|
Warranty
liability at end of year
|
|
$
|
85,608
|
|
|
$
|
48,696
|
|
Note
9 -
COMMITMENTS
Operating
Lease
The
Company leases office space in the US under an operating lease
agreement. The lease provides for monthly lease payments
approximating $10,063 and expires on July 31, 2009. Future minimum lease
payments under the operating leases as of March 31, 2008 approximate the
following:
Year
Ending March 31,
---------------------------
2009
|
|
$
|
120,756
|
|
2010,
four months
|
|
|
40,250
|
|
The
Company rents office space for its sales division in Hong Kong. The
lease provides for monthly lease payments approximating $50,000 USD and expires
on March 31, 2012. Future minimum lease payments under the operating
lease are as follows:
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH
31, 2008
Year
Ending March 31,
---------------------------
2009
|
|
$
|
360,000
|
|
2010
|
|
|
360,000
|
|
2011
|
|
|
360,000
|
|
2012
|
|
|
360,000
|
|
Rent
expenses for the year ended March 31, 2008 and March 31, 2007 were approximately
$487,896 and $144,544, respectively.
Note
10 –
SUBSEQUENT
EVENTS
On July
15, 2008, the Company signed a loan agreement with Excalibur to lend $19,193,000
(New Taiwan Dollar 582,452,000) expiring at the end of October 2008. The loan is
not interest bearing and secured by Excalibur’s vessel.
On July
18, 2008, the Company loaned $1,567,000 to Excalibur International Marine
Corporation (“Excalibur”), a shipping company located in Taiwan. The
loan was not evidenced by a written note, was not interest bearing and was due
upon demand.
On
September 23, 2008, the Company signed a loan agreement with Excalibur to lend
$2,000,000 at interest rate of 3.75% per month with a term of no more than 60
days.
EFT
BIOTECH HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER
30, 2008 AND 2007
(Unaudited)
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Page(s)
|
|
|
Unaudited
Consolidated Financial Statements
|
|
|
|
Consolidated
Balance Sheets - Unaudited
|
F-1
|
|
|
Consolidated
Statements of Operations and Other Comprehensive Income -
Unaudited
|
F-2
|
|
|
Consolidated
Statements of Cash Flows - Unaudited
|
F-3
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
F-4
|
|
|
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
35,328,559
|
|
|
$
|
15,165,620
|
|
Inventories
|
|
|
5,239,693
|
|
|
|
2,619,429
|
|
Available
for sale securities
|
|
|
714,874
|
|
|
|
835,965
|
|
Prepaid
expenses and other receivable
|
|
|
262,239
|
|
|
|
793,760
|
|
Note
receivable
|
|
|
21,193,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
62,738,365
|
|
|
|
19,414,774
|
|
|
|
|
|
|
|
|
|
|
Note
receivable
|
|
|
1,567,000
|
|
|
|
-
|
|
Property
and equipment, net
|
|
|
173,776
|
|
|
|
140,106
|
|
Restricted
cash
|
|
|
-
|
|
|
|
37,845,432
|
|
Security
deposit
|
|
|
27,108
|
|
|
|
27,108
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
64,506,249
|
|
|
$
|
57,427,420
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
590,087
|
|
|
$
|
804,041
|
|
Other
liabilities
|
|
|
3,593,322
|
|
|
|
12,787,714
|
|
Unearned
revenues
|
|
|
198,735
|
|
|
|
3,945,805
|
|
Deposits
from investors
|
|
|
52,279,728
|
|
|
|
37,845,432
|
|
Income
tax payable
|
|
|
489,000
|
|
|
|
305,000
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
57,150,872
|
|
|
|
55,687,992
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 25,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
none
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.0001 par value, 4,975,000,000 authorized,
|
|
|
|
|
|
|
|
|
61,089,081
and 61,022,414 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
September 30, 2008 and March 31, 2008
|
|
|
6,109
|
|
|
|
6,102
|
|
Additional
paid in capital
|
|
|
1,173
|
|
|
|
1,060
|
|
Retained
earnings
|
|
|
7,632,250
|
|
|
|
1,895,330
|
|
Accumulated
other comprehensive loss
|
|
|
(284,155
|
)
|
|
|
(163,064
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
7,355,377
|
|
|
|
1,739,428
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
64,506,249
|
|
|
$
|
57,427,420
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Statements of Operations and Other Comprehensive Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Sales
revenues, net
|
|
$
|
9,420,326
|
|
|
$
|
14,091,775
|
|
Shipping
charge
|
|
|
2,829,110
|
|
|
|
4,514,280
|
|
|
|
|
12,249,436
|
|
|
|
18,606,055
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
3,311,782
|
|
|
|
5,219,514
|
|
Shipping
cost
|
|
|
1,465,441
|
|
|
|
2,130,082
|
|
|
|
|
4,777,223
|
|
|
|
7,349,596
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,472,213
|
|
|
|
11,256,459
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
2,329,916
|
|
|
|
1,019,993
|
|
|
|
|
|
|
|
|
|
|
Net
operating income
|
|
|
5,142,297
|
|
|
|
10,236,466
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
772,120
|
|
|
|
22,180
|
|
Investment
income
|
|
|
7,088
|
|
|
|
-
|
|
Foreign
exchange gain (loss)
|
|
|
355
|
|
|
|
(121
|
)
|
Other
income (expense), net
|
|
|
(140
|
)
|
|
|
93,055
|
|
|
|
|
|
|
|
|
|
|
Total
other income
|
|
|
779,423
|
|
|
|
115,114
|
|
|
|
|
|
|
|
|
|
|
Net
income before income taxes
|
|
|
5,921,720
|
|
|
|
10,351,580
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
184,800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,736,920
|
|
|
$
|
10,350,780
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on available for sale securities
|
|
|
(121,091
|
)
|
|
|
62,723
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
5,615,829
|
|
|
$
|
10,413,503
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
61,086,531
|
|
|
|
59,821,414
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,736,920
|
|
|
$
|
10,350,780
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
24,117
|
|
|
|
19,170
|
|
Warranty
liability
|
|
|
(42,696
|
)
|
|
|
-
|
|
Stock
based compensation
|
|
|
120
|
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(2,620,264
|
)
|
|
|
(1,510,679
|
)
|
Prepaid
expenses and other receivable
|
|
|
531,521
|
|
|
|
382,200
|
|
Accounts
payable
|
|
|
(213,954
|
)
|
|
|
179,446
|
|
Other
liabilities
|
|
|
(9,151,696
|
)
|
|
|
161,474
|
|
Unearned
revenues
|
|
|
(3,747,070
|
)
|
|
|
330,815
|
|
Income
tax payable
|
|
|
184,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(9,299,002
|
)
|
|
|
9,913,206
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Increase
in note receivable
|
|
|
(22,760,000
|
)
|
|
|
-
|
|
Additions
to fixed assets
|
|
|
(57,787
|
)
|
|
|
(67,609
|
)
|
Purchase
in investments
|
|
|
-
|
|
|
|
(935,365
|
)
|
Increase
in due from officer
|
|
|
-
|
|
|
|
(1,828
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) investing activities
|
|
|
(22,817,787
|
)
|
|
|
(1,004,802
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
37,845,432
|
|
|
|
-
|
|
Proceeds
from investor deposits
|
|
|
14,434,296
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
52,279,728
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
20,162,939
|
|
|
|
8,908,404
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
15,165,620
|
|
|
|
554,562
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
35,328,559
|
|
|
$
|
9,462,966
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid in cash
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes paid in cash
|
|
$
|
800
|
|
|
$
|
800
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
Note
1 -
ORGANIZATION
EFT
Biotech Holdings, Inc. (“EFT Holdings” or “the Company”), formerly HumWare Media
Corporation, GRG, Inc., Ghiglieri Corporation, Karat Productions, Inc., was
incorporated in the State of Nevada on March 19, 1992.
On
November 18, 2007, the Company issued an aggregate of 53,300,000 shares of its
common stock in connection with a share exchange with the stockholders of EFT
BioTech, Inc. (“EFT BioTech”), a Nevada Corporation formed on September 17, 2007
(the “Transaction”), pursuant to which EFT BioTech became a wholly-owned
subsidiary of the Company. The 53,300,000 common shares issued represented
approximately 87.01% of the Company’s common stock outstanding after the
Transaction. Consequently, the stockholders of EFT BioTech, Inc. own a majority
of the Company's common stock immediately following the Transaction, therefore,
the Transaction is being accounted for as a "reverse acquisition", and EFT
BioTech is deemed to be the accounting acquirer in the reverse
acquisition.
On
September 17, 2007, EFT BioTech acquired EFT Limited, a British Virgin Islands
company (“BVI”) formed on August 22, 2007, pursuant to which EFT Limited (BVI)
became a wholly-owned subsidiary of EFT BioTech. Since both EFT
BioTech and EFT Limited (BVI) were under the common control, this acquisition
represents a reorganization of entities under common control.
EFT
Limited (BVI) has four wholly-owned subsidiaries: EFT, Inc., a California
company formed on January 1, 2003, Top Capital, Ltd. (BVI), a BVI company formed
on May 22, 2002, EFT (HK), Ltd., a Hong Kong (“HK”) company formed on November
1, 2006 and EFT International Ltd. (BVI), a BVI company formed on April 20,
2005, which it acquired all on November 14, 2007. As EFT Limited
(BVI) and the four companies being acquired were under the common control, this
acquisition also represents a reorganization of entities under common
control.
The
Company, through its subsidiaries, is engaged in the E-Business designed around
the concept of Business-to-customer using the World Wide Web as its “storefront”
and business platform to market, sell and distribute 43 American brand products
consisting of 22 nutritional products, 18 personal care products, 2 automotive
fuel additives, 1 home product and a portable drinking container.
Note
2 -
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America.
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation.
Foreign
Currency
The
Company’s reporting currency is the U.S. dollar. The Company’s operation in Hong
Kong uses Hong Kong dollar (HKD) as its functional currency. The financial
statements of the subsidiary are translated into U.S. Dollars (USD) in
accordance with Statement of Financial Accounts Standards (SFAS) No. 52, Foreign
Currency Translation. According to the Statement, all assets and liabilities
were translated at the current exchange rate, stockholders equity are translated
at the historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with SFAS No. 130, Reporting
Comprehensive Income as a Component of Stockholders Equity. Foreign exchange
transaction gains and losses are reflected in the income
statement. During the six months ended September 30, 2008 and 2007
there have been immaterial currency fluctuations between HKD and
USD.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash
Equivalents
Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less. The Company maintains its accounts in banks, several of which
exceed the federally insured limit. In aggregate, approximately $35.6 million
were out of federally insured limit.
Available for sale
securities
The
Company’s investments in publicly traded equity securities are classified as
available-for-sale and are reported at fair value (based on quoted prices and
market prices) using the specific identification method. Unrealized gains and
losses are reported as a component of stockholders’ equity. Realized gains and
losses on investments are included in investment and other income, net when
realized. Any impairment loss to reduce an investment’s carrying amount to its
fair market value is recognized in income when a decline in the fair market
value of an individual security below its cost or carrying value is determined
to be other than temporary.
Inventories
Inventories
are valued at the lower of cost (determined on a first-in, first-out basis) or
market. The Company records a write-down for inventories which have become
obsolete. The Management compares the cost of inventories with the market value
and allowance is made for writing down the inventories to market value, if
lower. Inventory consists of high tech nutritional, cosmetic, automotive
maintenance and environmentally safe products.
Property and
equipment
Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts, and any gain or loss is included in operations.
Depreciation of property and equipment is provided using the straight-line
method for substantially all assets with estimated lives of:
Machinery
and equipment
|
3
years
|
Office
equipment and furniture
|
3
years
|
Automobile
|
5
years
|
For the
six months ended September 30, 2008 and 2007, depreciation expenses were $24,117
and $19,170, respectively.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Long-Lived
Assets
Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a Disposal of a Segment of a Business. The Company
periodically evaluates the carrying value of long-lived assets to be held and
used in accordance with SFAS 144. SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the fair
market value of the long-lived assets. Loss on long-lived assets to be disposed
of is determined in a similar manner, except that fair market values are reduced
for the cost of disposal. Based on its review, the Company believes that, as of
September 30, 2008 there were no significant impairments of its long-lived
assets.
Fair Value of Financial
Instruments
Statement
of Financial Accounting Standard No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company discloses estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the short
term maturity of these instruments.
Revenue
Recognition
The
Company’s revenue recognition policy is in accordance with the requirements of
Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition,
(“SAB 104”), EITF 01-09,
Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
(“EITF 01-09”) and other applicable revenue recognition guidance and
interpretations. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectibility is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue. Cash consideration given by the Company to its sales
affiliates is considered to be a reduction of the selling prices of the
Company's products, thus, is recorded as a reduction of revenue.
Warranty
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. The specific warranty terms and
conditions vary depending upon the product sold, but generally include
replacement over a period of six months. Factors that affect the Company’s
warranty liability include the number of products currently under warranty,
historical and anticipated rates of warranty claims on those products, and cost
per claim to satisfy the warranty obligation. The anticipated rate of warranty
claims is the primary factor impacting the estimated warranty obligation. The
other factors are less significant due to the fact that the warranty period is
only six months and replacement is generally already in stock or available
at pre-determined price. Warranty claims are relatively predictable based on
historical experience of failure rates. If actual results differ from the
estimates, the Company revises its estimated warranty
liability.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Shipping
Costs
The
Company’s shipping costs are included in cost of sales in the accompanying
Consolidated Statements of Operations and Other Comprehensive Income for all
periods presented.
Advertising
Advertising
expenses consist primarily of costs of promotion for corporate image and product
marketing and costs of direct advertising. The Company expenses all advertising
costs as incurred. For the six months ended September 30, 2008 and 2007,
advertising expenses were $85,871 and $770, respectively.
Income
Taxes
The
Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007 The Interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased
disclosures.
Net Income Per
Share
Basic net
income per share is computed on the basis of the weighted average number of
common shares outstanding during the period.
Diluted
net income per share is computed on the basis of the weighted average number of
common shares and common share equivalents outstanding. Dilutive securities
having an anti-dilutive effect on diluted net income per share are excluded from
the calculation.
Dilution
is computed by applying the treasury stock method. Under this method, options
and warrants are assumed to be exercised at the beginning of the period (or at
the time of issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the
period.
Comprehensive
income
Comprehensive
income is defined as the change in equity of a company during a period from
transactions and other events and circumstances excluding transactions resulting
from investments from owners and distributions to owners. For the Company,
comprehensive income for the periods presented is comprised of net income and
unrealized gain/loss on marketable securities classified as
available-for-sale.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Concentration of Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions, but several of its bank accounts exceed
the federally insured limit, thus are exposed to credit risk in the case of
financial institutions failure. The Company’s accounts receivable is constantly
at a marginal to zero dollar ($0) level and its revenues are derived from orders
place by consumers located anywhere in the world over the Company’s designate
internet portal. The Company maintains a zero dollar ($0) allowance for doubtful
accounts and authorizes credits based upon its historical “sound and quality”
after sales customer services provided to affiliates and customers.
Historically, such customer services have been maintained in accordance with the
management expectations. The Company routinely assesses the credits authorized
to its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowance is limited.
Recent accounting
pronouncements
In March
2008, FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.
On May 8,
2008, FASB issued Statement of Financial Accounting Standards (SFAS) No. 162,
The Hierarchy of Generally Accepted Accounting Principles, which will provide
framework for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted
accounting principles (GAAP) for nongovernmental entities. With the issuance of
SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from
auditing literature to accounting literature. The Company is currently
assessing the impact of SFAS No. 162 on its financial position and results of
operations.
In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”
(“SFAS 141R”).
SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement is effective for fiscal years beginning on
or after December 15, 2008 and will be applied prospectively. The Company
is currently evaluating the potential impact of the adoption of SFAS 141R
on its consolidated financial position, results of operations or cash
flows.
In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51”
(“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective for fiscal years beginning on
or after December 15, 2008 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. The
Company is currently evaluating the potential impact of the adoption of
SFAS 160 on its consolidated financial position, results of operations or
cash flows.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Note
3 -
FINANCIAL
INSTRUMENTS
Disclosures about Fair Value
of Financial Instruments
Statement
of financial accounting standard No. 107, “Disclosures about Fair Value of
Financial Instruments”, requires that the Company discloses estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value due to the short
term maturity of these instruments. The fair value of investments has been
estimated based on quoted market prices, which the Company currently believes
are indicative of fair value.
Investments
The
following table summarizes the fair value and cost of the Company’s investments.
The Company’s investments are mainly on equity securities mutual
funds.
|
|
September
30, 2008
|
|
|
March
31, 2008
|
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Unrealized
(Loss)
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Unrealized
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
714
,
874
|
|
|
$
|
999,0
29
|
|
|
$
|
(284,155
|
)
|
|
$
|
835,965
|
|
|
$
|
999,0
29
|
|
|
$
|
(163,064
|
)
|
Investments
|
|
|
714
,
874
|
|
|
|
999,0
29
|
|
|
|
(
284
,
155
|
)
|
|
|
835,965
|
|
|
|
999,0
29
|
|
|
|
(163,064
|
)
|
Short-term
|
|
|
714,874
|
|
|
|
999,029
|
|
|
|
(284,155
|
)
|
|
|
835,965
|
|
|
|
999,029
|
|
|
|
(163,064
|
)
|
Long-term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Investments
|
|
$
|
714
,
874
|
|
|
$
|
999,0
29
|
|
|
$
|
(
284
,
155
|
)
|
|
$
|
835,965
|
|
|
$
|
999,0
29
|
|
|
$
|
(163,064
|
)
|
Note
4 -
NOTE
RECEIVABLE
On
September 23, 2008, the Company signed a loan agreement denominated in U.S.
dollars with Excalibur to lend $2,000,000 at interest rate of 3.75% per month
with a term of no more than 60 days.
On July
18, 2008, the Company lent $1,567,000 to Excalibur International Marine
Corporation (“Excalibur”). The loan has no written note, is not
interest bearing and due upon demand.
On July
15, 2008, the Company signed a loan agreement with Excalibur to lend $19,193,000
(New Taiwan Dollar 582,452,000) expiring at the end of October 2008. The loan is
not interest bearing and secured by Excalibur’s vessel.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
Note
5 –
PROPERTY AND
EQUIPMENT
Property
and equipment consist of the following:
|
|
September
30,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
176,384
|
|
|
$
|
176,384
|
|
Office
equipment and furniture
|
|
|
42,836
|
|
|
|
22,068
|
|
Machinery
and equipment
|
|
|
15,959
|
|
|
|
15,959
|
|
Leasehold
improvements
|
|
|
37,019
|
|
|
|
-
|
|
|
|
|
272,198
|
|
|
|
214,411
|
|
Less:
Accumulated depreciation
|
|
|
(98,422
|
)
|
|
|
(74,305
|
)
|
|
|
$
|
173,776
|
|
|
$
|
140,106
|
|
Note
6 –
OTHER
LIABILITIES
Other
liabilities consist of the following:
|
|
September
30,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Commission
Payable
|
|
$
|
2,904,510
|
|
|
$
|
12,028,644
|
|
Payroll
Liabilities
|
|
|
645,900
|
|
|
|
671,409
|
|
Warranty
liability
|
|
|
42,912
|
|
|
|
85,608
|
|
Other
|
|
|
-
|
|
|
|
2,053
|
|
|
|
$
|
3,593,322
|
|
|
$
|
12,787,714
|
|
Note
7 –
STOCKHOLDERS’
EQUITY
Common
stock
As of
September 30, 2008 the Company has 4,975,000,000 shares of common stock
authorized and 61,089,081 shares issued and outstanding at par value $0.0001 per
share.
During
the six months ended September 30, 2008, The Company issued 66,667 shares
of Common Stock.
Deposits from
investors
In March
2008, The Company received $37,845,432 deposits related to a private placement
of its common stock to non-resident aliens at a purchase price of $3.80 per
unit, for a unit consisting of one share of common stock and one common stock
redeemable purchase warrant. During the six months ended September 30, 2008, the
Company received $14,434,296 deposits from investors for the same private
placement. The private placement offering was terminated on October
25, 2008.
Note
8 -
INCOME
TAXES
The
Company was incorporated in the United States of America (“US”) and has
operations in three tax jurisdictions - the United States of America, the Hong
Kong Special Administrative Region (“HK SAR”) and the BVI. The Company generated
substantially all of its net income from its BVI operations for the six months
ended September 30, 2008 and 2007 which are not subject to any tax provision
according to BVI tax law. The Company’s HK SAR subsidiaries had no taxable
income in the respective periods. The deferred tax assets for the Company’s US
operations and HK SAR subsidiaries were immaterial at September 30, 2008 and
2007.
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
The
income tax expenses consist of the following:
|
|
Six
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Domestic
|
|
$
|
184,800
|
|
|
$
|
800
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Income
tax expenses
|
|
$
|
184,800
|
|
|
$
|
800
|
|
A
reconciliation of income taxes, with the amount computed by applying the
statutory federal income tax rate (37% for the six months ended September
30, 2008 and 2007) to income before income taxes for the six months ended
September 30, 2008 and 2007, is as follows:
|
|
Six
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Income
tax at U.S. statutory rate
|
|
$
|
1,715,862
|
|
|
$
|
3,105,234
|
|
State
minimum tax
|
|
|
800
|
|
|
|
800
|
|
Indefinitely
invested earnings of foreign subsidiaries
|
|
|
(1,540,991
|
)
|
|
|
(3,108,027
|
)
|
Nondeductible
expenses
|
|
|
9,129
|
|
|
|
2,793
|
|
|
|
$
|
184,800
|
|
|
$
|
800
|
|
Effective
tax rate
|
|
|
3
|
%
|
|
|
-
|
|
The
Company’s effective tax rate increased for the six months ended September
30, 2008, compared to the same period of 2007, is due to a higher proportion of
its operating profits being generated in the U.S.
Uncertain Tax
Positions
As a
result of the implementation of Interpretation 48, the Company recognized no
material adjustments to liabilities or stockholders’ equity. Interest associated
with unrecognized tax benefits are classified as income tax and penalties are
classified in selling, general and administrative expenses in the statements of
operations. The adoption of FIN 48 did not have a material impact on the
Company’s financial statements.
For the
six months ended September 30, 2008 and 2007, the Company had no unrecognized
tax benefits and related interest and penalties expenses. Currently,
the Company is not subject to examination by major tax
jurisdictions.
Note
9 -
WARRANTY
LIABILITY
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under its limited warranty. Changes in warranty liability
for standard warranties which are included in current liabilities on the
Company’s Consolidated Balance Sheets are presented in the following
tables:
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
|
|
September
30,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
Warranty
liability at beginning of period
|
|
$
|
85,608
|
|
|
$
|
48,696
|
|
Costs
accrued (recovered)
|
|
|
(42,696
|
)
|
|
|
36,912
|
|
Service
obligations honored
|
|
|
-
|
|
|
|
-
|
|
Warranty
liability at end of period
|
|
$
|
42,912
|
|
|
$
|
85,608
|
|
Current
portion
|
|
$
|
42,912
|
|
|
$
|
85,608
|
|
Non-current
portion
|
|
|
-
|
|
|
|
-
|
|
Warranty
liability at end of period
|
|
$
|
42,912
|
|
|
$
|
85,608
|
|
Note
10 -
COMMITMENT
Operating
Lease
The
Company leases office space in the US under an operating lease
agreement. The lease provides for monthly lease payments
approximating $10,063 and expires on July 31, 2009. Future minimum lease
payments under the operating leases as of September 30, 2008 approximate the
following:
Year
Ending March 31,
---------------------------
2009
|
|
$
|
60,378
|
|
2010
|
|
|
40,250
|
|
The
Company rents office space for its sales division in Hong Kong. The
lease provides for monthly lease payments approximating $50,000 USD and expires
on March 31, 2012. Future minimum lease payments under the operating
lease are as follows:
Year
Ending March 31,
---------------------------
2009
|
|
$
|
180,000
|
|
2010
|
|
|
360,000
|
|
2011
|
|
|
360,000
|
|
2012
|
|
|
360,000
|
|
Rent
expenses for the six months ended September 30, 2008 and 2007 were approximately
$244,305 and $244,923, respectively.
Note
11 –
SUBSEQUENT
EVENTS
|
a.
|
On
October 20, 2008, the Company formed EFT Investment Co.,
Ltd. EFT Investment Co., Ltd. is a wholly-owned subsidiary of
EFT Biotech Holdings, Inc. and operates in
Taiwan.
|
|
b.
|
On
October 25, 2008, the Company through its wholly-owned subsidiary, EFT
Investment Co. Ltd, a Taiwan company formed in November 2008, completed
the acquisition of 49% shares of Excalibur, a shipping Company located in
Taiwan.
|
|
c.
|
In November 14, 2008, the note
receivable of $19,193,000 (New Taiwan Dollar 582,452,000) was paid back in
full by Excalibur.
|
EFT
BIOTECH HOLDINGS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER
30, 2008
|
d.
|
In
November 2008, the Company issued 14,894,090 shares pursuant to the
private placement closed on October 25,
2008.
|