UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2015

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

For the transition period from _____ to _______

Commission File Number: 000-53730

EFT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

17800 Castleton St., Suite 300

City of Industry, CA 91748

(Address of Principal Executive Offices) (Zip Code)

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

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

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

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

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

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

As of February 16, 2016, the registrant had 75,983,201 outstanding shares of common stock.

INDEX

		Page

	Part I — Financial Information

Item 1.	Financial Statements.	4
	Consolidated Balance Sheets as of December 31, 2015 and March 31, 2015 (Unaudited)	4
	Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2015 and 2014 (Unaudited)	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended December 31, 2015 and 2014 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2015 and 2014 (Unaudited)	7
	Notes to Consolidated Financial Statements for the Nine Months Ended December 31, 2015 and 2014 (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

	Part II — Other Information

Item 1.	Legal Proceedings.	25
Item 1A.	Risk Factors.	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26
Item 3.	Defaults Upon Senior Securities.	26
Item 4.	Mine Safety Disclosures.	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	26
Signatures		27

Cautionary Statement

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to update these forward-looking statements. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this quarterly report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015 as filed with the Securities and Exchange Commission.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

EFT HOLDINGS, INC.

Consolidated Balance Sheets

(Unaudited)

	December 31, 2015			March 31, 2015
ASSETS
Current assets
Cash and cash equivalents	$	6,243,908		$	2,332,595
Securities available for sale		848,379			2,132,397
Inventories		235,258			303,848
Prepaid expenses		719,463			593,586
Other receivables		232,276			293,088
Total current assets		8,279,284			5,655,514

Property and equipment, net		9,990,119			894,129
Security deposit		351,208			360,203
Total assets	$	18,620,611		$	6,909,846
LIABILITIES AND EQUITY (DEFICIENCY)
Current liabilities
Accounts payable	$	2,060,447		$	1,073,795
Commission payable		3,684,459			3,785,004
Accural and other current liabilities		2,917,683			5,874,187
Unearned revenues		3,191,206			3,198,776
Short-term loan		411,436			281,240
Contingent liabilities		204,141			214,019
Total current liabilities		12,469,372			14,427,021

Equity (deficiency)
EFT Holdings, Inc. stockholders' equity (deficiency):
Preferred stock, $0.001 par value, 25,000,000 shares authorized, none issued and outstanding					-
Common stock, $0.00001 par value, 4,975,000,000 shares authorized, 75,983,201 shares issued and outstanding at December 31, 2015 and March 31, 2015		760			760
Additional paid in capital		52,854,891			52,854,891
Retained deficit		(46,550,072	)		(60,304,126	)
Accumulated other comprehensive loss		(98,063	)		(19,178	)
Total EFT Holdings, Inc. stockholders’ equity (deficiency)		6,207,516			(7,467,653	)
Non-controlling interest		(56,277	)		(49,522	)
Total equity (deficiency)		6,151,239			(7,517,175	)
Total liabilities and equity (deficiency)	$	18,620,611		$	6,909,846

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

EFT HOLDINGS, INC.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2015			2014			2015			2014

Revenues, net	$	75,358		$	263,373		$	297,072		$	611,907
Shipping charges		5,715			74,724			42,239			188,133
Total revenues, net		81,073			338,097			339,311			800,040

Cost of revenues		47,239			109,013			163,148			249,544
Shipping costs		9,324			2,010			9,819			34,156
Total cost of revenues		56,563			111,023			172,967			283,700
Gross profit		24,510			227,074			166,344			516,340
Operating expenses:
Selling, general and administrative expenses		2,209,022			1,535,096			4,766,626			4,125,890
Provision for inventory obsolescence		190			32,942			6,599			152,173
Royalty expenses - related party		125,000			125,000			375,000			375,000
Total operating expenses		2,334,212			1,693,038			5,148,225			4,653,063
Operating loss		(2,309,702	)		(1,465,964	)		(4,981,881	)		(4,136,723	)
Other income/(expense)
Interest income		13,626			32,558			60,598			126,682
Interest expense		(1,091	)		(41,795	)		(44,510	)		(114,051	)
Settlement of previously accrued interest for income tax		-			-			962,991			-
Settlement of previously written-off investment		13,798,028			-			13,798,028			-
Loss on disposal of securities available for sale (includes $(14,492) and $(56,824) accumulated other comprehensive loss reclassifications for unrealized net gains on securities available for sale for the nine months ended December 31, 2015 and 2014, respectively)		(502	)		(6,155	)		(13,352	)		(62,832	)
Dividend income		-			-			-			8,787
Foreign exchange loss		(557	)		(255	)		(1,073	)		(2,789	)
Gain on sale of long-term investment		-			-			-			2,407,038
Other income		5,680			11,797			27,870			67,489
Total other income/(expense)		13,815,184			(3,850	)		14,790,552			2,430,324

Income (loss) from continuing operations before income taxes		11,505,482			(1,469,814	)		9,808,671			(1,706,399	)
Income tax expense (benefit)		26,978			4,177			(3,938,628	)		6,049
Income (loss) from continuing operations		11,478,504			(1,473,991	)		13,747,299			(1,712,448	)
Discontinued operations
Loss from operation of Excalibur		-			(29,606	)		-			(27,018	)
Loss from disposal of Excalibur		-			(2,622,906	)		-			(2,622,906	)
Total loss from discontinued operations		-			(2,652,512	)		-			(2,649,924	)
Net income (loss)		11,478,504			(4,126,503	)		13,747,299			(4,362,372	)
Loss from non-controlling interest		2,579			16,981			6,755			19,832
Net income (loss) attributable to EFT Holdings, Inc.	$	11,481,083		$	(4,109,522	)	$	13,754,054		$	(4,342,540	)

Net income (loss) per share – continuing operations
Basic and diluted	$	0.15		$	(0.02	)	$	0.18		$	(0.02	)

Net loss per share – discontinued operations
Basic and diluted	$	-		$	(0.03	)	$	-		$	(0.03	)

Net income (loss) per common share attributable to EFT Holdings, Inc.
Basic and diluted	$	0.15		$	(0.05	)	$	0.18		$	(0.06	)

Weighted average common shares outstanding
Basic and diluted		75,983,201			75,983,201			75,983,201			75,983,201

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

EFT HOLDINGS, INC.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2015			2014			2015			2014

Net income (loss)	$	11,478,504		$	(4,126,503	)	$	13,747,299		$	(4,362,372	)
Other comprehensive income/(loss)
Foreign currency translation adjustment		(27,913	)		(847,715	)		(67,633	)		(582,804	)
Unrealized income/(loss) on securities available for sale		6,842			(9,723	)		(11,253	)		50,227
Comprehensive income (loss)		11,457,433			(4,983,941	)		13,668,413			(4,894,949	)
Less: Comprehensive income/(loss) attributable to non-controlling interests		(2,579	)		(30,689	)		(6,755	)		153,118
Comprehensive income (loss) attributable to EFT Holdings, Inc.	$	11,460,012		$	(4,953,252	)	$	13,675,168		$	(5,048,067	)

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

EFT HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	December 31,			December 31,
	2015			2014
Cash flows from operating activities:
Net income (loss) from continuing operations	$	13,747,299		$	(1,712,448	)
Net loss from discontinued operations		-			(2,649,924	)
Net income (loss)		13,747,299			(4,362,372	)
Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		128,657			143,137
Loss from securities available for sale		13,352			62,832
Provision for inventory obsolescence		6,599			152,173
(Gain)/loss on disposal of fixed assets		11,432			(1,725	)
Settlement of previously accrued income tax, penalty and interest		(5,290,788	)		-
Changes in operating assets and liabilities:
Inventories		59,991			175,671
Prepaid expenses		327,303			431,979
Accrual and other current assets		66,987			157,872
Accounts receivable		(9,704	)		44,291
Accounts payable		987,516			1,575
Commission payable		(100,545	)		(112,938	)
Accrual and other current liabilities		2,362,449			140,681
Unearned revenues		(7,570	)		(23,790	)
Net cash provided by/(used in) continuing operations		12,302,978			(3,190,614	)
Net cash provided by discontinued operations		-			2,649,924
Net cash provided by/(used in) operating activities		12,302,978			(540,690	)

Cash flows from investing activities:
Additions to fixed assets		(9,300,890	)		-
Proceeds from disposal of fixed assets		-			20,145
Purchase of securities available for sale		(34,969	)		(3,188,408	)
Proceeds from available for sale securities		1,294,384			5,186,716
Net cash provided by/(used in) continuing operations		(8,041,475	)		2,018,453
Net cash provided by discontinued operations		-			-
Net cash provided by/(used in) investing activities		(8,041,475	)		2,018,453

Cash flows from financing activities:
Repayment of short-term loan		(331,974	)		(374,489	)
Net cash used in continuing operations		(331,974	)		(374,489	)
Net cash provided by discontinued operations		-			-
Net cash used in financing activities		(331,974	)		(374,489	)

Effect of exchange rate changes on cash		(18,216	)		70,797

Net increase in cash		3,911,313			1,174,071
Cash, beginning of period		2,332,595			1,770,206
Cash, end of period	$	6,243,908		$	2,944,277

Supplemental disclosures of cash flow information:
Interest paid in cash	$	2,526		$	4,377

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

EFT HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - ORGANIZATION

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

Note 2 - GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has negative working capital of $4,190,088 and an accumulated deficit of $46,550,072 as of December 31, 2015, and it reported net operating losses for the past three fiscal years. The accumulated deficit was reduced during the quarter ended December 31, 2015 by the recovery of approximately $13,800,000 relating to the provision for the investment in Taiwan that was written off. However, the Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital from external sources in order to continue the long-term efforts contemplated under its business plan. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2015 and the results of operations and cash flows for the periods ended December 31, 2015 and 2014. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the nine months ended December 31, 2015 are not necessarily indicative of the results to be expected for any subsequent periods or for the year ending March 31, 2016. The balance sheet at March 31, 2015 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended March 31, 2015 as included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned except for Digital Development Partners Inc., “Digital”, which is 91.74% owned by the Company. All material intercompany transactions and balances have been eliminated.

Uses of estimates in the preparation of financial statements

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

Fair value measurements

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

Level 1 —

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

Level 2 —

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

Level 3 —

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

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

Recent accounting pronouncements

There are no new accounting pronouncements adopted or enacted during the nine months ended December 31, 2015 that had, or are expected to have, a material impact on the Company’s financial statements.

Note 4 – SECURITIES AVAILABLE FOR SALE

Securities available for sale consist of the following:

	December 31, 2015
	Amortized		Unrealized		Unrealized			Market		Average
	Cost		Gains		Losses			Value		Duration (1)
Corporate bonds	$	290,625	$	131	$	(14,317	)	$	276,439		4.46
Corporate notes		571,458		3,727		(3,245	)		571,940		2.32
Total debt securities	$	862,083	$	3,858	$	(17,562	)	$	848,379

	March 31, 2015
	Amortized		Unrealized		Unrealized			Market		Average
	Cost		Gains		Losses			Value		Duration (1)
Corporate bonds	$	1,568,102	$	13,350	$	(5,245	)	$	1,576,207		4.79
Corporate notes		567,261		-		(11,071	)		556,190		3.07
Total debt securities	$	2,135,363	$	13,350	$	(16,316	)	$	2,132,397

(1)

Average remaining duration to maturity, in years.

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

The following table shows the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, as of December 31, 2015:

	Less than 1 year				1 Year or More					Total
	Market		Unrealized		Market		Unrealized			Market		Unrealized
	Value		Losses		Value		Losses			Value		Loss
Corporate bonds	$	-	$	-	$	256,137	$	(14,317	)	$	256,137	$	(14,317	)
Corporate notes		-		-		258,065		(3,245	)		258,065		(3,245	)
Total debt securities	$	-	$	-	$	514,202	$	(17,562	)	$	514,202	$	(17,562	)

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

There were 13 securities in an unrealized loss position at December 31, 2015. Management does not intend to sell any of the securities classified as available for sale which have unrealized losses and believes that it is not likely that the Company will have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased and are not the result of deteriorated credit quality. The fair value is expected to recover as the bonds approach their maturity or re-pricing date or if market yields for such investments decline. Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality.

Investment securities with a book value of $1,307,736 were sold during the nine months ended December 31, 2015. The Company recognized a loss of $13,352 on the sale of those securities.

Note 5 – INVENTORIES

The components of inventories were as follows:

	December 31, 2015		March 31, 2015
Raw materials and supplies	$	40,350	$	42,302
Finished goods		194,908		261,546
	$	235,258	$	303,848

Note 6 - LOANS TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

The Company uses the “EFT” name, a trademark owned and licensed to it by EFT Assets Limited, a company that Wendy Qin, a director of EFT International Ltd., served as a director until March 2015. The Company is required to pay an annual royalty to EFT Assets Limited equal to a percentage of its gross sales for the previous fiscal year. The percentage is 5% for the first $30 million in gross sales, 4% for the $10 million in gross sales in excess of $30 million, 3% for the $10 million in gross sales in excess of $40 million; 2% for the $10 million in gross sales in excess of $50 million; and 1% for the $10 million in gross sales in excess of $60 million, with a minimum annual royalty of $500,000. EFT Assets Limited is owned by a number of persons, including Wendy Qin. Ms. Qin is the sister of Jack Jie Qin, the Company’s president. In March 2015, Wendy Qin resigned her position as a director of EFT Assets Limited. During the nine months ended December 31, 2015 and 2014, the royalties paid to EFT Assets Limited for both periods were $375,000.

In March 2010, one of the Company’s subsidiaries, EFT International Ltd., entered into a consultancy agreement with JFL Capital Limited, a company in which Wendy Qin serves as a director and is one of the principal shareholders. Under this agreement, EFT International Ltd. engaged JFL Capital Limited to provide EFT International Ltd. consultancy services on administration, financial matters, corporate planning and business development commencing April 1, 2010, and the annual fee will be increased at the rate of $15,000 each year. The agreement may be terminated by either party on three months’ written notice. For the nine months ended December 31, 2015, professional fees payable to JFL Capital Limited was $292,500. For the nine months ended December 31, 2014, EFT International Ltd paid $281,250 to JFL Capital Limited.

Until June 24, 2015, the Company rented 2,500 square feet of office space for its satellite training center in Hong Kong. The office was located at Langham Office Tower, 8 Argyle Street, Kowloon, Hong Kong SAR. The space that was subject to the lease is owned by a number of persons, including Wendy Qin, a director of EFT (HK) Ltd and the sister of Jack Jie Qin, the Company’s president. Until March 31, 2014, the lease was for 6,500 square feet with a monthly rental of $30,900. On May 1, 2014, the Company reduced the rented space to 4,356 square feet in an effort to reduce the Company’s costs and the monthly rental was reduced to $23,972. On November 1, 2014, the Company further reduced the rented space to 2,500 square feet and the monthly rental was reduced to $10,735. Beginning on April 1, 2015 through June 24, 2015, the monthly rent for the 2,500 square feet of rented space increased to $15,319. The lease was terminated on June 24, 2015. During the nine months ended December 31, 2015 and 2014, the Company paid the lessor $42,893 and $191,794, respectively, in rent.

Note 7 - DECONSOLIDATION OF SUBSIDIARY - EXCALIBUR

On October 25, 2008, the Company through its wholly-owned subsidiary, EFT Investment, acquired a 48.81% equity interest in Excalibur International Marine Corporation, “Excalibur”, for $19,193,000. Between July 2008 and February 2015, the Company made loans to Excalibur aggregating approximately $6.78 million, which bore interest at 8% per annum and were due from July 2014 to September 2015. The loans were primarily used by Excalibur to acquire its vessel, the Ocean La La, and to fund operating costs. Since the Company provided funding and exercised control over Excalibur, Excalibur was treated as a subsidiary and its accounts were consolidated into the Company’s financial statements. Accordingly, these loans were not reflected in the Company’s consolidated financial statements.

On October 3, 2014, the Ministry of Economic Affairs of Taiwan issued a letter to the Company stating that the registrations for the issuance of shares of Excalibur on May 16 and June 15, 2007 were judged to be false by the Taiwan High Court. Therefore, these two registrations were cancelled and all subsequent registrations that followed based upon the untrue basis of the two false share registrations were cancelled as well.

As the acquisition of 48.81% of Excalibur’s shares by EFT Investment was made after these two invalid share registrations in May and June 2007, the share registration regarding EFT Investment’s purchase of Excalibur’s shares was also cancelled.

In regards to the historical financial reporting treatment, considering the facts that the Company has provided financial support to Excalibur’s operations and was committed to absorb the losses from Excalibur’s operations, the Company has concluded the investment in Excalibur would be considered a Variable Interest Entity, “VIE”, in accordance with ASC 810. As a result of the Company’s investment in Excalibur being considered a VIE, the Company would have consolidated the accounts of Excalibur from the time of its investment and there would have been no impact on the historical financial statements previously presented for the Company.

In view of the loss of the Company’s shareholding right and the fact that the Company will not provide financial support to Excalibur in the future, Excalibur was deconsolidated from the Company’s consolidated accounts effective on October 1, 2014. The Company recognized a loss of $2,622,906 as a result of disposal of Excalibur in October 2014, which included gain from disposal of subsidiary of $7,042,255 and the write-off of intercompany loan receivables from Excalibur of $9,665,161.

Note 8- INVESTMENT IN CTX VIRTUAL TECHNOLOGIES

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

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

During the nine months ended December 31, 2014, the Company sold approximately 5 million shares of its holdings in CTX for approximately $2.5 million less commissions and other fees and reported a gain of approximately $2.4 million in the accompanying consolidated statement of operations.

Note 9 – SETTLEMENT OF PREVIOUSLY WRITTEN-OFF INVESTMENT

EFT Investment Co. Ltd., “EFT Investment”, is a wholly-owned subsidiary of the Company in Taiwan. Hong Dong Chen (a.k.a. Thomas Chen), the former General Manager and Director of EFT Investment, recommended that the Company purchase an industrial office building located in Taipei, Taiwan, the “Taiwan Building”. As one of the five towers of the “CBD Project”, of which Meifu Development Co., Ltd. (“Meifu”) and TransGlobe Life Insurance Inc. (“TransGlobe”) were two of the developers, the Taiwan Building consists of 14 floors and 144 parking spaces. Cheng Hao Peng (a.k.a. Tom Peng) exercised actual control over both Meifu and TransGlobe.

During the year ended March 31, 2012, EFT Investment paid NTD600 million (approximately $20.8 million) as a deposit to secure the right to purchase the Taiwan Building per the agreements governing the investment (the “Taiwan Building Agreements”). EFT Investment subsequently chose not to exercise any option it may have had to purchase the building from Meifu and TransGlobe under the Taiwan Building Agreements and suspended all future payments to either company. EFT Investment suspected that Thomas Chen had breached his fiduciary duties and had, jointly with Meifu and TransGlobe, committed fraud and misrepresentation related to the Taiwan Building transactions. The Company commenced civil proceedings against TransGlobe, MeiFu, Peng Cheng-Hao (President of Meifu) and Thomas Chen pertaining to the Taiwan Building transactions. On September 9, 2015, the court dismissed this legal action against all of the defendants.

As required by U.S. GAAP, the Company performed an impairment analysis related to the deposit on the Taiwan Building every year. As of March 31, 2014, full amount of deposit had been impaired. EFT Investment continued to vigorously pursue the recovery of the full value of the deposit on the Taiwan Building.

On October 15, 2015, the Company reached a settlement agreement with Meifu and TransGlobe. Pursuant to the settlement agreement, EFT Investment received an office building and associated land with fair market value of approximately NTD 305 million (approximately $9.3 million) and cash of approximately NTD 153 million (approximately $4.7 million) from Meifu and cash of approximately NTD 76 million (approximately $2.3 million) from TransGlobe. The Company recorded a gain of $13.8 million from this settlement, net of all related settlement charges, commissions and fees, in the quarter ended December 31, 2015. As part of the settlement agreement, the Company agreed that it would pay Meifu up to NTD130 million (approximately $4 million) and pay TransGlobe up to NTD13.5 million (approximately $0.4 million) if a certain tax return is not refund from the government. (See Note 11)

Note 10 – ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:

	December 31, 2015		March 31, 2015
Payroll liabilities	$	44,690	$	46,289
Warranty liabilities		1,647		2,025
Accrued expenses		2,720,893		384,135
Provision for tax		11,469		3,985,856
Interest and penalty for income tax accrued		135,090		1,452,479
Others		3,894		3,403
	$	2,917,683	$	5,874,187

Note 11 - CONTINGENT LIABILITIES

In 2009, the Company’s subsidiary, Tianquan, engaged a general contractor to construct a water manufacturing plant for RMB4,758,600 ($766,000). Upon completion, EFT inspected the plant and found several material construction defects, including, but not limited to, the fact that the contractor used inferior construction material, inconsistent construction plans and substandard insulation material. As a result, EFT conditioned its final construction payment to the contractor in the amount of RMB698,896 ($112,500) on the rectification of all construction defects. On March 22, 2012, the contractor brought a case against EFT in Baiquan People’s Court in Heilongjiang Province seeking approximately RMB1,912,000 of purported outstanding payments under the contract and interest thereon. On January 16, 2014, Tianquan received an unfavorable decision issued by Baiquan People’s Court in Heilongjiang Province awarding the contractor approximately RMB1,326,916 ($213,700) of purported outstanding payments under the contract and interest thereon. The Company filed an appeal with Qiqihar Intermediate People’s Court on January 27, 2014. On August 18, 2014, the Qiqihar Intermediate People’s Court issued a judgment rescinding the unfavorable decision issued by the Baiquan People’s Court and ordered the case to be reheard at the Baiquan People’s Court. On September 25, 2014, the Company received a favorable decision from Baiquan People’s Court as the court indicated that the company stamps affixed on all of the contractor’s legal documents were fake. On November 5, 2014, the sub-contractor brought another civil case against Tianquan in the Baiquan People’s Court in Heilongjiang Province seeking RMB1,123,266.06 of purported outstanding payments under the same contract and interest thereon. On December 8, 2014, Tianquan filed a civil lawsuit against the sub-contractor for compensation for material construction defects. On January 5, 2016, the Company’s subsidiary, Tianquan, received an unfavorable decision issued by Baiquan People’s Court awarding the contractor approximately RMB827,000 of purported outstanding payments under the contract and interest thereon. The Court ordered the subcontractor to reimburse the amount of RMB120,000 for testing fees to the Company. The Company filed an appeal of the two cases and the final resolutions are now pending.

On October 15, 2015, the Company reached a settlement agreement with Meifu and TransGlobe. Pursuant to the settlement agreement, EFT Investment received an office building and associated land (see note 9). As part of the settlement agreement, the Company agreed that it would pay Meifu up to NTD130 million (approximately $4 million) and pay TransGlobe up to NTD13.5 million (approximately $0.4 million) if a certain tax refund is not received from the government.

Note 12 – SHORT-TERM LOAN

The Company received a $571,200 loan from a third party, Insurance Financing, Inc., “IFI”, to finance the directors’ and officers’ insurance premium for the fiscal years 2013 and 2014. The loan bore an interest rate of 3.60% per annum, and was to be repaid over a nine-month period which began on December 15, 2013. The terms of the agreement allowed for the Company to make nine equal payments of $64,422 each and the loan was fully repaid during the quarter ended September 30, 2014.

The Company renewed coverage for the 2014-2015 period and received a new loan in the amount of $503,200 from IFI to finance the directors’ and officers’ insurance premium bearing an interest rate of 3.60% per annum. The loan was to be repaid over a nine-month period beginning on December 15, 2014. The terms of the agreement allowed for the Company to make nine equal payments of $56,753 each.

The Company renewed coverage for the 2015-2016 periods and received a new loan in the amount of $462,170 from IFI to finance the directors’ and officers’ insurance premium bearing an interest rate of 3.60% per annum. The loan was to be repaid over a nine-month period beginning on December 15, 2015. The terms of the agreement allowed for the Company to make nine equal payments of $52,126 each.

Note 13 – WARRANTS

As of March 31, 2014, the Company’s subsidiary Digital had 2,000,000 common stock warrants outstanding and 330,665 Series A warrants and 330,665 Series B warrants outstanding, which were accounted for as equity instruments. The 2,000,000 common stock warrants expired on June 1, 2014 and permitted the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share. The Series A warrants and Series B warrants expired on September 30, 2014 and permitted the holders to purchase one share of Digital’s common stock at an exercise price of $1.00 per share and $1.25 per share, respectively. There were no warrants exercised in the nine months ended December 31, 2015 and 2014, respectively.

Note 14 - INCOME TAXES

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

The Company generated substantially all of its net income from its BVI operations for the nine months ended December 31, 2015 and 2014. According to BVI tax law, this income is not subject to any taxes. The Company’s HK SAR subsidiaries are subject to a 16.5% profit tax based on its taxable net profit. EFT (HK) Ltd provides management service to a BVI subsidiary, and the BVI subsidiary reimburses EFT (HK) Ltd for its total operating expenses plus a 5% mark up, and the income is subject to a 16.5% profit tax. The deferred tax assets for the Company’s US operations were immaterial for the nine months ended December 31, 2015 and 2014.

The Company’s Taiwan subsidiary, EFTI, and its factory in mainland China are subject to a 17% and 25% standard enterprise income tax, respectively, based on its taxable net profit. These operations have incurred net accumulated operating losses for income tax purposes and management believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, it has provided full valuation allowance for the deferred tax assets arising from the losses as of December 31, 2015 and 2014.

The income tax expense (benefit) consists of the following:

	Nine Months Ended December 31,
	2015			2014
Current:
Domestic – Federal	$	-		$	-
– State		29,056			5,072
Foreign		(2,078	)		977
Effect of IRS audit		(3,965,606	)		-
Income tax expense (benefit)	$	(3,938,628	)	$	6,049

A reconciliation of income taxes, with the amounts computed by applying the statutory federal income tax rate, 37% for the nine months ended December 31, 2015 and 2014, to income before income taxes for the nine months ended December 31, 2015 and 2014, is as follows:

	Nine Months Ended December 31,
	2015			2014
Income tax provision (benefit) at U.S. statutory rate	$	4,349,156		$	(1,594,505	)
State tax		29,056			5,072
Deferred tax valuation allowance		(4,201,379	)		1,591,128
Nondeductible expenses		(147,777	)		3,377
Foreign subsidiary income tax		(2,078	)		977
Effect of IRS audit		(3,965,606	)		-
Income tax expense (benefit)	$	(3,938,628	)	$	6,049

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S., income tax examinations by tax authorities for tax years before the year ended March 31, 2007.

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

In December 2013, the IRS concluded its audit of the Company’s returns for the years 2007 through 2010 and issued an examination report that proposed adjustments of $12.3 million of additional tax liabilities for the years 2008 through 2010. As a result of this report, the Company increased its income tax provision to $8.6 million during the quarter ended December 31, 2014. Even though the Company increased its income tax provision as a result of this report, the Company continued to challenge the IRS findings.

After receiving further information from the Company subsequent to the issuance of its original report, the IRS issued a revised report that significantly reduced the amount of tax the Company owes. Accordingly, the Company revised its provision for income taxes, accrued interest and penalty and has reversed $4.1 million of the provision recorded previously.

In September 2015, the Company received the final report from the IRS related to its audit for the years 2008 through 2010, which concluded that the Company did not owe any additional taxes for the periods under audit. However, the IRS has alleged that the Company did not file its tax returns for the years 2008 and 2009 on time and has assessed the Company tax and penalties totaling $117,000. The Company believes that the returns were timely filed and has contested the IRS’s claim. Accordingly, the Company’s provision for tax liabilities plus interest and penalty has been reduced by $5.3 million in the quarter ended September 30, 2015.

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

In December 2015, the Company received a Notice of Federal Tax Lien for $220,000 for civil penalties related to the tax periods ending December 31, 2013 and 2014. The Company believes that the Company’s tax returns, which are based on a fiscal year end of March 31, were filed timely and has contested the IRS’s claims.

In January 2016, the Company received a Notice of Penalty Charges of $110,000 for civil penalties related to the tax period ending December 31, 2015. The Company believes that the Company’s tax returns, which are based on a fiscal year end of March 31, were filed timely and has contested the IRS’s claims.

Note 15 – SEGMENT INFORMATION

The Company’s business is classified by management into two reportable business segments: online and beverage. The online business reportable segment is an aggregation of the Company’s online operating segments, which are organized to sell the Company’s products to Affiliates through its websites. The online business reportable segment derives revenue from the sales of nutritional products, personal care products and EFT-phones and access fees for its network platform. The beverage business reportable segment derives revenue and expense from the bottled water factory in Baiquan, Heilongjiang Province, the PRC. Unallocated items comprise mainly corporate expenses and corporate assets.

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

The following tables provide the business segment information as of and for the three and nine months ended December 31, 2015 and 2014. Income tax allocations have been determined based on statutory rates in the applicable business segment.

	Three months ended December 31, 2015
	Online			Beverage			Unallocated
	business			business			items			Total
Total revenues, net	$	81,073		$	-		$	-		$	81,073
Total cost of revenues		(56,563	)		-			-			(56,563	)
Gross profit		24,510			-			-			24,510
Operating expenses:
Selling, general and administrative expenses		493,735			60,067			1,655,220			2,209,022
Provision for inventory obsolescence		190			-			-			190
Royalty expenses		125,000			-			-			125,000
Total operating expenses		618,925			60,067			1,655,220			2,334,212
Net operating loss		(594,415	)		(60,067	)		(1,655,220	)		(2,309,702	)
Other income		15,063			-			13,800,121			13,815,184
Allocated income tax benefit (expense)		2,078			-			(29,056	)		(26,978	)
Income (loss) after income tax		(577,274	)		(60,067	)		12,115,845			11,478,504

Total long-lived assets		1,821			729,124			9,259,174			9,990,119

Additions to long-lived assets		-			-			9,299,641			9,299,641

	Three months ended December 31, 2014
	Online business			Beverage business			Unallocated items			Total
Total revenues, net	$	338,097		$	-		$	-		$	338,097
Total cost of revenues		(111,023	)		-			-			(111,023	)
Gross profit		227,074			-			-			227,074
Operating expenses:
Selling, general and administrative expenses		540,262			52,367			942,467			1,535,096
Provision for inventory obsolescence		32,942			-			-			32,942
Royalty expenses		125,000			-			-			125,000
Total operating expenses		698,204			52,367			942,467			1,693,038
Net operating loss		(471,130	)		(52,367	)		(942,467	)		(1,465,964	)
Other income/(expense)		23,568			(16	)		(27,402	)		(3,850	)
Allocated income tax expense		(977	)		-			(3,200	)		(4,177	)
Loss after income tax		(448,539	)		(52,383	)		(973,069	)		(1,473,991	)

Total long-lived assets		28,319			907,576			1,937			937,832

Additions to long-lived assets		-			-			-			-

	Nine months ended December 31, 2015
	Online			Beverage			Unallocated
	business			business			items			Total
Total revenues, net	$	339,311		$	-		$	-		$	339,311
Total cost of revenues		(172,967	)		-			-			(172,967	)
Gross profit		166,344			-			-			166,344
Operating expenses:
Selling, general and administrative expenses		1,347,607			147,357			3,271,662			4,766,626
Provision for inventory obsolescence		6,599			-			-			6,599
Royalty expenses		375,000			-			-			375,000
Total operating expenses		1,729,206			147,357			3,271,662			5,148,225
Net operating loss		(1,562,862	)		(147,357	)		(3,271,662	)		(4,981,881	)
Other income		56,503			1			14,734,048			14,790,552
Allocated income tax benefit		2,078			-			3,936,550			3,938,628
Income (loss) after income tax		(1,504,281	)		(147,356	)		15,398,936			13,747,299

Total long-lived assets		1,821			729,124			9,259,174			9,990,119

Additions to long-lived assets		1,249			-			9,299,641			9,300,890

	Nine months ended December 31, 2014
	Online business			Beverage business			Unallocated items			Total
Total revenues, net	$	800,040		$	-		$	-		$	800,040
Total cost of revenues		(283,700	)		-			-			(283,700	)
Gross profit		516,340			-			-			516,340
Operating expenses:
Selling, general and administrative expenses		1,435,612			166,824			2,523,454			4,125,890
Provision for inventory obsolescence		152,173			-			-			152,173
Royalty expenses		375,000			-			-			375,000
Total operating expenses		1,962,785			166,824			2,523,454			4,653,063
Net operating loss		(1,446,445	)		(166,824	)		(2,523,454	)		(4,136,723	)
Other income		110,289			4,770			2,315,265			2,430,324
Allocated income tax expense		(977	)		-			(5,072	)		(6,049	)
Loss after income tax		(1,337,133	)		(162,054	)		(213,261	)		(1,712,448	)

Total long-lived assets		28,319			907,576			1,937			937,832

Additions to long-lived assets		-			-			-			-

Note 16 – LITIGATION

On October 1, 2010, EFT Investment Co. Ltd., “EFTI”, filed a lawsuit against Hsiao Zhong-Xing, former general manager of Excalibur, and Lu Zhuo-Jun, former vice general manager of Excalibur, collectively “Defendants,” in the Taiwan Shihlin District Prosecutor’s Office. EFTI alleges, among other things, that Defendants committed the offences of capital forging, fraud, breach of trust, and document fabrication. On April 30, 2013, the Taiwan Shihlin District Court found that both Hsaio Zhong-Xing and Lu Zhuo-Jun were guilty of fraudulent increase of paid-up capital and dismissed all other charges. As a result, Hsiao Zhong-Xing received a six-month jail sentence and Lu Zhuo-Jun received a five-month jail sentence. Both of their jail sentences can be converted into a fine. On May 27, 2013, the Shihlin District Prosecutor filed an appeal in the Taiwan High court for reconsideration of the judgment entered by the District Court. On February 19, 2014, the Taiwan High Court sustained the District Court’s decision and found Hsaio Zhong-Xing guilty and sentenced him to a mandatory ten-month jail sentence; and found Lu Zhuo-Jun guilty and sentenced him to a mandatory eight-month jail sentence. This decision is final and confirmed. Based on the Taiwan Shihlin District Court’s judgment of fraudulent increase of paid-up capital, Excalibur filed a civil lawsuit against Hsiao Zhong-Xing, Lu Zhuo-Jun and Jiao Ren-He on January 7, 2014 for the unpaid capital amount of NTD 475,312,500. On January 13, 2015, being the largest creditor of Excalibur, EFTI filed a submission to the court to apply to join the case and the court’s decision is pending. On April 14, 2015, Excalibur filed with the court to withdraw the case and the court approved.

EFTI filed a civil lawsuit against Jiao Ren-Ho, Chang Hui-Ying, Hsiao Zhong-Xing, and Lu Zhuo-Jun, collectively “Defendants,” in the Taiwan Shihlin District court on February 12, 2010. EFTI alleges Defendants committed tortious acts, including but not limited to the offences of capital forging, fraud, breach of trust and document fabrication. The Shihlin District Court found in favor of all Defendants in the case. EFTI filed an appeal in the appellate court for reconsideration of the judgment entered by the District Court. The appellate court remanded the case to District Court for a second review and the District Court found in favor of all defendants for the second time. EFTI therefore filed a second appeal in the appellate court for reconsideration of the judgment entered by the District Court. On December 7, 2015, the appellate court dismissed the appeal.

Marinteknik Shipbuilders (S) Pte Ltd., a Singapore company, filed a lawsuit against Excalibur in the Taiwan Taichung District Court on July 9, 2009 for unpaid service fees and out-of-pocket expenses of NTD 8,050,832, equivalent to approximately $254,700. On August 20, 2009, the Taiwan Taipei district court froze Excalibur’s cash of $203,402 in response to the suit. A contingent liability for the restricted cash has been recorded. As EFTI is Excalibur’s largest creditor, in consideration of recovering the frozen cash, EFTI filed a submission to the court to apply to join the case on January 13, 2015. On June 16, 2015, the Taiwan High Court Taichung Branch Court sustained the decision of the Taiwan Taichung District Court in favor of Marinteknik. As Excalibur is no longer EFTI’s subsidiary, EFTI cannot appeal the case and the case has been closed.

On August 2, 2010, the Company commenced a legal proceeding against Marinteknik Shipbuilders (S) Pte Ltd. and six other persons in the High Court of the Republic of Singapore alleging fraud, misrepresentation, and deceit on the part of the defendants with respect to the Company’s investment in Excalibur. The Company claims that the wrongful actions of the defendants resulted in damages of $19,000,000 to the Company. On December 11, 2012, the High Court issued a decision whereby it dismissed the Company’s actions against Marinteknik and Lim Lan Eng (Priscilla), a director of Marinteknik. On January 8, 2013, the Company filed an appeal against the decision made by the High Court. On November 29, 2013, the appellate court issued its order and sustained the High Court’s decision and awarded legal fees to the defendants. The Company has accrued a liability in the amount of $200,000 for the legal costs. The High Court dismissed the appeal by the Company, but criticized the defendants, stating that their actions were “wholly lacking in probity” and “likely also to have been unlawful”. After seeking further legal advice and balancing all factors, however, it was decided that commencing further legal proceedings on this matter is not beneficial to the commercial interests of the Company. On October 15, 2015, the High Court determined that the Company is obligated to bear the defendants’ legal costs of approximately SGD307,000.

In 2009, the Company’s subsidiary, Heilongjiang Tianquan Manor Soda Drinks Co. Ltd., “Tianquan”, engaged a general contractor, the “Contractor”, to construct a water manufacturing plant, the “Plant”, for RMB4,758,600 ($776,300). Upon completion, the Company inspected the Plant and found several material construction defects, including, but not limited to, the fact that the Contractor used inferior construction material, inconsistent construction plans and substandard insulation material. As a result, in 2010, the Company conditioned its final construction payment to the Contractor in the amount of RMB698,896 ($112,500) on the rectification of all construction defects. On March 22, 2012, the Contractor brought a case against Tianquan in Baiquan People’s Court in Heilongjiang Province seeking approximately RMB1,912,000 of purported outstanding payments under the contract and interest thereon. On January 16, 2014, the Company’s subsidiary, Tianquan, received an unfavorable decision issued by Baiquan People’s Court in Heilongjiang Province awarding the contractor approximately RMB1,326,916 of purported outstanding payments under the contract and interest thereon. Tianquan filed an appeal with the Qiqihar Intermediate People’s Court on January 27, 2014. On August 18, 2014, the Qiqihar Intermediate People’s Court issued a judgment rescinding the unfavorable decision issued by the Baiquan People’s Court and ordered the case to be reheard at the Baiquan People’s Court. On September 25, 2014, Tianquan received a favorable decision from Baiquan People’s Court as the court indicated that the company stamps affixed to all of the Contractor’s legal documents were fake. On November 5, 2014, the sub-contractor brought another civil case against Tianquan in the Baiquan People’s Court in Heilongjiang Province seeking RMB1,823,787 of purported outstanding payments under the same contract and interest thereon. On December 8, 2014, Tianquan filed a civil lawsuit against the sub-contractor for compensation for material construction defects. On December 31, 2015, the two cases were reheard at the Baiquan People’s Court and the sub-contractor changed the claim in the amount of RMB1,123,266. On January 5, 2016, the Company’s subsidiary, Tianquan, received an unfavorable decision issued by Baiquan People’s Court awarding the contractor approximately RMB827,000 of purported outstanding payments under the contract and interest thereon. The Court ordered the subcontractor to reimburse the amount of RMB120,000 for testing fees to the Company. The Company filed an appeal of the two cases and the final resolutions are now pending.

On August 8, 2012, the Company filed a complaint against Edward Carter, a former consultant, in the Superior Court of California, county of Los Angeles, in which the Company alleges, among other things, that Mr. Carter breached his consulting contract, fiduciary duty and committed fraud and misrepresentation in respect to the Company’s investment in CTX Virtual Technologies, Inc., “CTX”, as sponsored by Buckman, Buckman & Reid, Inc., “BB&R”, a financial consulting firm and placement agent. This matter was dismissed as part of a mutual settlement that was entered into between the parties on or around February 25, 2015.

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

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

On June 4, 2015, the Superior Court of California, County of Los Angeles ruled that because the Company has its principal place of business in California, the matter was stayed to allow the Company time to file in the appropriate forum. The Court further ordered that Taiwan is a suitable forum for the Company’s complaint. An order to show cause was set for December 4, 2015.

On September 9, 2015, the court dismissed this legal action against all of the defendants with prejudice. A subsequent settlement was reached on October 15, 2015 by all parties. As part of the terms of the settlement, the Company will receive both real property and cash valued at approximately $16.5 million.

On July 23, 2013, the Taipei District Prosecutor’s Office issued a non-indictment decision on charges of fraud against the Defendants, which the Company believes is unwarranted. The decision not to indict the Defendants was made despite the fact that the Taiwan Investigation Bureau, Ministry of Justice had confirmed that Thomas Chen, the former GM of EFTI, has received and/or has intended to receive secret profits from Tom Peng, who admitted his full control over Meifu and Transglobe. A report by the Taiwan Investigation Bureau, Ministry of Justice, further revealed, among other fraudulent activities, that Tom Peng and his son, Steven Peng, a.k.a. Tien Te Peng, were involved in illegal inter-company transactions and illegal related party transactions. Documents received by the Company through court petition indicated that, on June 14, 2013, the Prosecutor in Taiwan, despite what the Company believes to have been ample evidence of illegality, instructed the Taiwan Investigation Bureau to halt all further investigations into EFTI’s criminal complaint prior to his written decision not to indict the Defendants. Subsequently, on August 22, 2013, EFTI completed the filing of the appeal with the Taiwan High Prosecutor’s Office for reconsideration of the non-indictment charges against the Defendants. This appeal was rejected on August 29, 2013, which the Company believes was not enough time for the Prosecutor’s Office to fully reconsider the appeal. On September 12, 2013, EFTI filed a final petition to the Taipei District Court for judgment of the decision made by the Taiwan High Prosecutor’s Office, but the petition was rejected on March 5, 2014. On October 15, 2015, the Company reached a settlement agreement with the defendants and the civil case in the Los Angeles Supreme Court was dismissed with prejudice.

On November 27, 2013, a class action entitled Li, et al. v. EFT Holdings, Inc., et al. was filed on behalf of a putative class of all purchasers of one or more of the Company’s products against the Company and Jack Qin in the United States District Court for the Central District of California. On April 29, 2015, the court consolidated this action with the Wang, et al. v. EFT Holdings, Inc., et al. action. On May 7, 2015, Plaintiffs voluntarily dismissed the claims of the individual plaintiffs without prejudice.

On November 27, 2013, a class action entitled Li, et al. v. Qin, et al. was filed on behalf of a putative class of all purchasers of the Company’s products against the Company and certain of its current and former officers and directors in the United States District Court for the Central District of California. On April 29, 2015, the court consolidated this action with the Wang, et al. v. EFT Holdings, Inc., et al. action. On May 7, 2015, Plaintiffs voluntarily dismissed the claims of the individual plaintiffs without prejudice.

On January 30, 2015, a class action entitled Wang, et al. v. EFT Holdings, Inc., et al. was filed on behalf of a putative class of all purchasers of the Company’s products against the Company and certain of its current and former officers and directors in the United States District Court for the Central District of California. On April 14, 2015, Plaintiffs filed a first amended complaint. On April 29, 2015, the court consolidated this action with the Li, et al. v. Qin, et al. and Li, et al. v. EFT Holdings, Inc., et al. actions. On May 7, 2015, Plaintiffs filed a motion for class certification, which the Company opposed. On May 11, 2015, Plaintiffs filed a second amended and consolidated complaint, alleging claims for operation of an endless chain scheme, deception and common law fraud, unfair competition, false advertising, and RICO violations. On August 11, 2015, Plaintiffs filed their third amended complaint. On September 1, 2015, the Company filed an answer to the third amended complaint. On September 22, 2015, the Company filed an amended answer to the third amended complaint. On November 30, 2015, the Company filed, with leave of court, its second amended answer to the third amended complaint. On December 14, 2015, the court denied Plaintiffs’ motion for class certification. As a result of the court’s denial of class certification, on January 22, 2016, Plaintiffs moved to dismiss their claims against the Company without prejudice and without costs. On February 12, 2016, the court granted Plaintiffs’ motion to dismiss in part, ordering that Plaintiffs may dismiss their claims without prejudice upon payment of the Company’s taxable costs. The Company believes that Plaintiffs’ claims are without merit and, in the event they are not voluntarily dismissed, the Company intends to defend against them vigorously.

On December 6, 2013, the Company named George Curry, a former director and officer of the Company, as one of the defendants in the Superior Court of California, County of Los Angeles, with reference to the CTX investment transaction, in which the Company alleges, among other things, that Mr. Curry breached his fiduciary duty and committed fraud and misrepresentation in respect of the Company’s investment in CTX.

On April 18, 2014, George Curry filed a Notice of Removal for the above action to be brought in the District Court of California, Los Angeles (Western District). In the same action, he brought a counterclaim against the Company, Jack Qin and Pyng Soon and sought implied and equitable indemnity, declaratory relief and apportionment of fault. On or around December 11, 2014, George Curry filed a motion for summary judgment against the Company and all other cross-defendants in the matter. The motion was heard on February 26, 2015, wherein the court denied George Curry’s motion. Thereafter, a second motion for summary judgment was filed by Mr. Curry. That motion was denied as well. The final resolution of the entire matter is still pending. Trial is currently scheduled for September 27, 2016. In addition, the Court consolidated the trial of this matter with that of the Company’s lawsuit against CTX, Buckman, Buckman & Reid and Peter Lau.

On March 4, 2015, the Company filed a civil lawsuit in the United States District Court, Central District of California, against CTX, Buckman, Buckman & Reid, Cliff Rhee and Peter Lau alleging breach of covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, concealment, negligent misrepresentation and negligence.

On April 14, 2015, Defendant CTX filed a motion to dismiss. On May 28, 2015, the court granted CTX’s motion, in part, with leave to amend. The Company filed a First Amended Complaint on June 8, 2015, asserting causes of action for: (1) breach of covenant of good faith and fair dealing; (2) breach of fiduciary duty; (3) fraud-misrepresentation; and (4) fraud-concealment. On June 24, 2015, CTX filed an answer to the First Amended Complaint. Buckman, Buckman & Reid and Peter Lau also filed a motion to dismiss the Complaint. The Court granted the motion with respect to the breach of fiduciary duty claim, with leave to amend, but denied it as to all other claims. After the Company’s filing of its First Amended Complaint, Buckman, Buckman & Reid and Peter Lau filed an answer to the First Amended Complaint on July 9, 2015.

On June 22, 2015, a complaint entitled Greenstone Holdings, Inc. v. EFT Holdings, Inc., et al. was filed in the United States District Court for the Central District of California, asserting a claim for express indemnity against the Company. The Company believes that the claim asserted is without merit and intends to defend against it vigorously. Discovery is currently ongoing, and trial is presently scheduled to commence on May 10, 2016.

Note 17 - SUBSEQUENT EVENTS

The Company has reviewed its subsequent events through the date these consolidated financial statements were issued and has determined that no material subsequent events have occurred through such date.

ITEM 2.

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

Products

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

The Company generally does not have a return policy but it does provide a warranty for its products. The specific warranty terms and conditions vary depending upon the product sold, but generally include replacement of defective products, but no refunds, during the six month period following a sale. Historically, the Company’s warranty expenses have not been material.

Manufacturing

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

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

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

Sales

The Company sells its products primarily through its website and only to “Affiliates.” To become an Affiliate, a customer must be referred by another Affiliate and make a minimum purchase of $450 ($400 worth of products plus $50 for shipping and handling fees). After that point, the new Affiliate is not required to make any additional purchases, pay membership fees, buy products, resell products, recruit others, or attend meetings. Free educational classes are offered to the Company’s Affiliates so they can learn more about the Company’s products and how to use them.

As of February 16, 2016, the Company had received 1,259,007 orders from its Affiliates, most of whom were located in China and Hong Kong. For the nine months ended December 31, 2015, the Company did not have any sales activities in the United States. None of the Company’s Affiliates account for a significant portion of its business.

The Company pays its Affiliates a commission on products ordered from the Company. The commission is approximately 58% of the total dollar amount of the order. Commissions are considered a reduction of the sales price of the Company’s products and are reflected in the Company’s financial statements as a reduction in revenue. The commissions earned by each Affiliate are held in book entry form. The Affiliate can use the commissions to pay for new orders. With this process, the Company reduces operating expense and eliminates cumbersome accounting chores such as issuing checks and reconciling bank statements.

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

EFT-Phone and ToByTo reward program

In February 2010, the Company assigned the worldwide distribution and servicing rights to a product known as the “EFT-Phone” to Digital Development Partners, Inc., “Digital”, previously an unrelated company, in exchange for 79,265,000 shares of Digital’s common stock. The shares the Company acquired represent approximately 92% of Digital’s outstanding common stock. The EFT-Phone is a cell phone which uses the Android operating system. The worldwide distribution and servicing rights to the EFT-Phone include the right to sell the EFT-Phone to the Company’s Affiliates and others. Digital also acquired the rights to distribute all EFT-Phone accessories. Digital began distributing EFT-Phones in July 2010.

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

On April 1, 2012, the Company assigned network access rights to ToByTo Limited, “ToByTo”, a third-party company. The network access rights to ToByTo Limited include the right to access EFT’s Affiliate database for ToByTo’s marketing campaign, and provides access to EFT’s e-money system to facilitate sales activities. ToByTo, in return, compensates EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the ToByTo e-phone program or another agreed upon amount. During the nine months ended December 31, 2015 and 2014, the Company agreed to waive the access fees in lieu of ToByTo agreeing to purchase a portion of the Company’s overstocked inventory.

eZGT Travel Program

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

On April 1, 2012, the Company assigned network access rights to eZGT Limited, a third party. The network access rights to eZGT Limited include the right to access EFT’s Affiliate database for eZGT’s marketing campaign, and provides access to EFT’s e-money system to facilitate sales activities. eZGT Limited, in return, compensates EFT by paying access fees in an amount equal to 10% of the respective enrollment fee of every Affiliate who enters the $300 and $3,000 travel programs or another agreed upon amount. However, for Affiliates who enter the $800 and $8,000 travel programs, eZGT will only pay access fees in the amount of $30 and $300, respectively. During the nine months ended December 31, 2015 and 2014, the Company agreed to waive the access fees in lieu of eZGT Limited agreeing to purchase a portion of the Company’s overstocked inventory for an agreed upon period of time.

Market Environment

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

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

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

Results of Operations

Comparison for the Three Months Ended December 31, 2015 and 2014

Revenues, net

Revenues, net decreased to approximately $75,000 for the three months ended December 31, 2015 from approximately $263,000 for the three months ended December 31, 2014 primarily due to a decrease in product sales demand. Revenues, net excludes revenue from shipping charges and reflects the deduction of commission expense. The Company’s policy is to pay commissions to Affiliates upon receipt of sales orders even before revenue can be recognized. In addition, sales orders dropped from $ 460,410 to $26,260 which caused commission expense to decrease to $11,430 for the three months ended December 31, 2015 from $270,350 for the three months ended December 31, 2014. Gross sales of products declined from approximately $489,000 for the three months ended December 31, 2014 to $32,800 for the three months ended December 31, 2015, or 93.3%. The sales of promotional products increased to approximately $54,000 for the three months ended December 31, 2015 from $45,000 for the three months ended December 31, 2014.

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

Shipping charges

Shipping charges decreased to approximately $5,700 for the three months ended December 31, 2015 from approximately $75,000 for the three months ended December 31, 2014 mainly due to a significant decrease in sales.

Cost of revenues

Cost of revenues consists mainly of merchandise purchased from vendors. Cost of revenues decreased to approximately $47,000 for the three months ended December 31, 2015 from approximately $109,000 for the three months ended December 31, 2014. Cost of revenues as a percentage of revenues for the three months ended December 31, 2015 was 62.7%, which is 21.3% higher than the same period last year mainly due to an increase in vendor price and promotional sales of products at cost during the period.

Gross profit

Gross profit decreased to approximately $25,000 for the three months ended December 31, 2015 compared to approximately $227,000 for the three months ended December 31, 2014. Gross profit, as a percentage of total revenues, was 30.2% during the current period compared with 67.2% for the three months ended December 31, 2014. The decrease in gross profit as a percentage of total revenues was due to an increase in shipping costs to approximately $9,300 for the three months ended December 31, 2015 from $2,000 for the three months ended December 31, 2014 and an increase in vendor prices and promotional sales of products at cost during the period.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to approximately $2,209,000 for the three months ended December 31, 2015 compared to $1,535,000 for the three months ended December 31, 2014, mainly due to a significant increase in legal fees.

Inventory obsolescence

Inventory obsolescence decreased to $190 for the three months ended December 31, 2015 as compared to $33,000 for the three months ended December 31, 2014, mainly due to significantly lower amounts of inventory either at or nearing obsolescence in the current period as compared to the same period last year.

Royalty expenses

Royalty expenses remained at $125,000 for the three months ended December 31, 2015 and 2014. Since the current year annualized sales do not meet the minimum sales required to comply with the terms of the agreement, an adjustment was made during the period ended December 31, 2015 to recognize the expense based on the prorated minimum contract amount instead of actual sales revenues.

Interest income

Interest income decreased to approximately $14,000 for the three months ended December 31, 2015 as compared to approximately $33,000 for the three months ended December 31, 2014. Interest income decreased primarily due to a decrease in investments in corporate bonds as compared to the prior period.

Interest expense

Interest expense decreased to approximately $1,000 for the three months ended December 31, 2015 as compared to $42,000 for the three months ended December 31, 2014. The decrease was mainly due to the decrease in accrued interest by approximately $40,000 related to the provision for tax liabilities for the years 2008 to 2010 in the three months ended December 31, 2014.

Settlement of previously written-off investment

Income of approximately $13,800,000 in the three months ended December 31, 2015 related mainly to the recovery of the prepayment for the investment in Taiwan in the amount of approximately $18,200,000, which had been written off, after an offset for handling fees and commissions in the amount of approximately $4,400,000 pursuant to the settlement agreement with Meifu and TransGlobe. The settlement agreement was signed in October 2015 and the Company received a refund from Meifu and TransGlobe in the form of cash and property in the amount of approximately $16,500,000 for settling its investment in Taiwan.

Other income (expense)

Other income decreased to approximately $5,700 for the three months ended December 31, 2015 from approximately $11,800 for the three months ended December 31, 2014. The decrease in other income was mainly due to a decrease in sales of expired products.

Income tax expense (benefit)

Income tax expense was approximately $27,000 for the three months ended December 31, 2015 as compared to expenses of approximately $4,200 for the three months ended December 31, 2014. The increase is mainly due to additional tax recorded per amended federal and state tax returns filed in December 2015.

Results of Operations

Comparison for the Nine Months Ended December 31, 2015 and 2014

Revenues, net

Revenues, net decreased to approximately $297,000 for the nine months ended December 31, 2015 from approximately $612,000 for the nine months ended December 31, 2014, primarily due to a decline in sales demand from the Company’s Affiliates. Revenues, net excludes revenue from shipping charges and reflects the deduction of commission expense. The Company’s policy is to pay commissions to Affiliates upon receipt of sales orders even before revenue can be recognized. In addition, sales orders dropped from $1,206,000 to $334,000 which caused commission expense to decrease to $191,000 for the nine months ended December 31, 2015 from $703,000 for the nine months ended December 31, 2014. Gross sales of products declined from approximately $1,228,000 to $341,000, or 72.2%.

Shipping charges

Shipping charges decreased to approximately $42,000 for the nine months ended December 31, 2015 from approximately $188,000 for the nine months ended December 31, 2014 mainly due to a decrease in sales.

Cost of revenues

Cost of revenues decreased to approximately $163,000 for the nine months ended December 31, 2015 from approximately $250,000 for the nine months ended December 31, 2014, due to a reduction in sales. Cost of revenues of products declined by 34.8% from $250,000 for the nine months ended December 31, 2014 to $163,000 for the nine months ended December 31, 2015 mainly due to the sales of promotional products of $87,000 and $147,000, respectively for the same periods. Despite the items that were sold at discounted prices, cost of revenues as a percentage of revenues for the nine months ended December 31, 2015 was 54.9%, which was 14.1% higher than the same period last year mainly due to vendor price increases during the period.

Gross profit

Gross profit decreased to approximately $166,000 for the nine months ended December 31, 2015 compared to approximately $516,000 for the nine months ended December 31, 2014. Gross profit, as a percentage of total revenues, was 49% during the current period compared with 64.5% for the nine months ended December 31, 2014. The decrease in gross profit was due to a reduction in gross sales and the high volume of sales of promotional products at cost during the current period.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to approximately $4,770,000 for the nine months ended December 31, 2015 compared to approximately $4,126,000 for the nine months ended December 31, 2014 mainly due to an increase in legal fees during the period.

Inventory obsolescence

Inventory obsolescence decreased to $6,600 for the nine months ended December 31, 2015 as compared to $152,000 for the nine months ended December 31, 2014, mainly due to significantly lower amounts of inventory either at or nearing obsolescence in the current period as compared to the nine months ended December 31, 2014.

Royalty expenses

Royalty expenses remained at $375,000 for the nine months ended December 31, 2015 and 2014.

Interest income

Interest income decreased to approximately $61,000 for the nine months ended December 31, 2015 as compared to approximately $127,000 for the nine months ended December 31, 2014. Interest income decreased primarily due to a decrease in investments in corporate bonds as compared to the prior period.

Interest expense

Interest expense decreased to approximately $45,000 for the nine months ended December 31, 2015 as compared to approximately $114,000 for the nine months ended December 31, 2014. The decrease was mainly due to the decrease in accrued interest expenses by approximately $80,000 related to the provision for tax liabilities for the years 2008 to 2010 in the nine months ended December 31, 2014.

Settlement of previously written-off investment

Income of approximately $13,800,000 in the nine months ended December 31, 2015 related mainly to the recovery of the prepayment for the investment in Taiwan in the amount of approximately $18,200,000, which had been written off, after an offset for handling fees and commissions in the amount of approximately $4,400,000 pursuant to the settlement agreement with Meifu and TransGlobe. The settlement agreement was signed in October 2015 and the Company received a refund from Meifu and TransGlobe in the form of cash and property in the amount of approximately $16,500,000 for settling its investment in Taiwan.

Gain on sales of long-term investment

The gain for the nine months ended December 31, 2015 was nil as compared to approximately $2,400,000 for the nine months ended December 31, 2014. The decrease was mainly due to the sales by the Company of CTX shares in the amount of approximately $2.4 million that it had previously written off.

Other income (expense)

Other income decreased to approximately $28,000 for the nine months ended December 31, 2015 from approximately $67,000 for the nine months ended December 31, 2014. The decrease in other income was mainly due to a decrease in sales of expired products.

Settlement of previously accrued interest for income tax

In September 2015, the Company reversed accrued interest of approximately $963,000 related to the settlement of the provision for tax liabilities for the years 2008 to 2010 confirmed by the final report received from the IRS.

Income tax expense (benefit)

Income tax benefit was approximately $3,940,000 for the nine months ended December 31, 2015 as compared to expenses of approximately $6,000 for the nine months ended December 31, 2014. The change was mainly due to the reversal of the over-accrual for the provision of tax liabilities for the years 2008 to 2010 confirmed by the final report received from the IRS in September 2015.

Capital Resources and Liquidity

The following table shows the Company’s sources of cash for the nine months ended December 31, 2015 and 2014.

	Nine Months Ended December 31,
	2015			2014
Net cash provided by (used in) operating activities	$	12,302,978		$	(540,690	)
Net cash provided by (used in) investing activities		(8,041,475	)		2,018,453
Net cash used in financing activities		(331,974	)		(374,489	)
Effect of exchange rate changes on cash		(18,216	)		70,797
Net increase in cash	$	3,911,313		$	1,174,071

Operating activities

For the nine months ended December 31, 2015, net cash provided by operating activities was $12,302,978. This was primarily due to net income of $13,747,299 adjusted by non-cash related expenses that included depreciation expense of $128,657, loss on disposal of fixed assets $11,432, losses realized from the sales of securities available for sale of $13,352 and a net decrease in working capital items of $3,686,427 which were offset by the settlement of previously accrued income tax, penalty and interest of $5,290,788.

For the nine months ended December 31, 2014, net cash used in operating activities was $540,690. This was primarily due to a net loss of $4,362,372 adjusted by non-cash related expenses that included depreciation expense of $143,137, provision for inventory obsolescence of $152,173, a net decrease in working capital items of $815,341 and losses realized from the sales of securities available for sale of $62,832.

Investing activities

Net cash used in investing activities for the nine months ended December 31, 2015 was $8,041,475, primarily due the property transfer from Meifu of $9,300,890 pursuant to the settlement agreement and offset by the proceeds from the sale of corporate bonds of $1,294,384.

Net cash provided by investing activities for the nine months ended December 31, 2014 was $2,018,453, mainly due to proceeds from the sale of corporate bonds of $5,186,716, which were partially offset by the purchase of $3,188,408 of corporate bonds.

Financing activities

Net cash used in financing activities for the nine months ended December 31, 2015 was $331,974, due to the repayment of a short-term loan for financing of the Company’s current year directors’ and officers’ liability insurance policy. For more information please see Note 12 to the consolidated financial statements in this Report.

Net cash used in financing activities for the nine months ended December 31, 2014 was $374,489, primarily due to repayment of a short-term loan for financing of the Company’s directors’ and officers’ insurance policy.

Working Capital

	December 31, 2015			March 31, 2015
Current assets	$	8,279,284		$	5,655,514
Current liabilities		12,469,372			14,427,021
Working capital (deficiency)	$	(4,190,088	)	$	(8,771,507	)

Historically, cash and cash equivalents and securities available for sale have been the Company’s primary sources of liquidity. The Company believes its existing cash and cash equivalents will not be sufficient to meet its working capital requirements for the next 12-month period. The overall working capital position improved to a deficiency of $4.2 million at December 31, 2015 compared to a deficiency of $8.8 million at March 31, 2015 as a result of the reversal of more than $5.2 million of tax liabilities associated with the final report received from the IRS in September 2015.

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

There is substantial doubt about the Company’s ability to continue as a going concern as the continuation of the Company’s business is dependent upon obtaining further long-term financing. The issuance of additional equity securities by the Company could result in a significant dilution of the equity interests of its current shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company’s liabilities and future cash commitments.

Balance Sheet Items

Material changes in the Company’s balance sheet items between December 31, 2015 and March 31, 2015 are discussed below:

Securities Available for Sale

Securities available for sale decreased to $848,379 at December 31, 2015 compared to $2,132,397 at March 31, 2015, as the Company sold certain securities to fund operations.

Inventories

Inventory decreased to $235,258 at December 31, 2015 compared to $303,848 at March 31, 2015 due to the sale of overstocked products or products nearing expiration during the nine months ended December 31, 2015 to third parties, since the Company only orders products on an “as needed” basis to avoid overstocking and lower inventory levels are adequate to meet the current demand.

Property and Equipment

Property and equipment increased to $9,990,119 at December 31, 2015 compared to $894,129 at March 31, 2015, as a result of additional property in the amount of approximately $9,300,000 transferred by Meifu for settling the Company’s investment in Taiwan and scheduled depreciation expense being recorded.

Accounts Payable

Accounts payable increased to $2,060,447 at December 31, 2015 compared to $1,073,795 at March 31, 2015 due to an increase in unpaid legal fees during the period.

Commission Payable

Commission payable slightly decreased to $3,684,459 at December 31, 2015 compared to $3,785,004 at March 31, 2015 due to lower commissions earned by Affiliates during the nine months ended December 31, 2015.

Accrual and Other Current Liabilities

Other liabilities decreased to $2,917,683 at December 31, 2015 compared to $5,874,187 at March 31, 2015. The decrease of $2,956,504 is mainly due to the reversal of an accrual of tax liabilities associated with the IRS audit for the years 2008-2010 and offset by commission payable pursuant to the settlement agreement relating to the Company’s investment in Taiwan. As discussed earlier, the final report received from the IRS in September 2015 stated that the Company did not owe any additional taxes for these periods with the exception of $117,000 of tax and penalty related to the untimely filing of the 2008 and 2009 tax returns.

Unearned Revenue

Unearned revenue slightly decreased to $3,191,206 at December 31, 2015 compared to $3,198,776 at March 31, 2015 due to the recording of unearned revenue resulting from temporary delays associated with the recognition of revenue related to the sale of products or services to Affiliates.

Contractual Obligations and Commitments

The Company’s contractual obligations and commitments as of December 31, 2015 did not materially change from the amounts set forth in its Annual Report on Form 10-K for the year ended March 31, 2015.

Commitments for Capital Expenditures

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

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

Off-Balance Sheet Arrangements

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

Significant Accounting Policies/Recent Accounting Pronouncements

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

Critical Accounting Policies and Estimates

The Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, “U.S. GAAP”. The Company’s significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015, as filed with the U.S. Securities and Exchange Commission, “SEC”, on July 14, 2015.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.

Controls and Procedures.

(a)

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Jack Jie Qin and William E. Sluss, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Qin and Sluss concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2015.

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

(b)

Changes in Internal Controls

There was no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2015 that is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

See Note 17 to the financial statements included as part of this Report.

Item 1A.

Risk Factors.

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibits

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

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

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

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

101*	The following materials from the EFT Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended December 31, 2015, filed on February 22, 2016 formatted in Extensible Business Reporting Language (XBRL):

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

*Filed herewith.

SIGNATURES

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

		EFT HOLDINGS, INC.
		(Registrant)

Date: February 22, 2016	By:	/s/ Jack Jie Qin
		Jack Jie Qin
		Principal Executive Officer

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

EFT Holdings, Inc. 10-Q