UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, November 30, 2014
☐ o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to ______
Commission file number 001-34274
001-34274ADGS ADVISORY, INC .
(Exact name of Registrant as Specified in its Charter)
| Delaware | 42-1743717 | |
(State or other jurisdiction | (I.R.S. Employer | |
| of incorporation or | organization) | |
| Identification No.) |
Units 2611-13A, 26/F 113 Argyle Street, Mongkok Kowloon, Hong Kong, SAR | N/A | |
(852) 2374-0002
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesIndicate 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).
YesIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | Accelerated filer | ||
| Non-accelerated filer | Smaller reporting company | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
YesState the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.0001 par value per share; 27,690,0001,484,843,869 outstanding as of April 15, 2014.
ADGS ADVISORY, INC.
TABLE OF CONTENTS
| Pages | ||||||
| PART I - FINANCIAL INFORMATION | ||||||
| Item 1. | Financial Statements. | 1 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 3 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 11 | ||||
| Item 4. | Controls and Procedures. | 11 | ||||
| Item 1. | Legal Proceedings. | 12 | ||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 12 | ||||
| Item 3. | Default upon Senior Securities. | 12 | ||||
| Item 4. | Mine Safety Disclosures. | 12 | ||||
| Item 5. | Other Information. | 12 | ||||
| Item | Exhibits. | 12 | ||||
| SIGNATURES | ||||||
| 13 | ||||||
i
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED FEBRUARY 28,NOVEMBER 30, 2014 (UNAUDITED)
1
ADGS ADVISORY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2013 (UNAUDITED)
| CONTENTS | Pages | |||
| Condensed Consolidated Balance Sheets as of | F-1 | |||
| Condensed Consolidated Statements of Operations for the Three | F-2 | |||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the | F-3 | |||
| Condensed Consolidated Statements of Cash Flows for the | F-4 | |||
| Notes to the Condensed Consolidated Financial Statements (Unaudited) | F-24 |
2
BALANCE SHEETS (UNAUDITED)
(Unaudited)
| November 30, | August 31, | |||||||
| 2014 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | - | $ | 95,811 | ||||
| Restricted cash | - | 258,968 | ||||||
| Accounts receivable | - | 1,461,876 | ||||||
| Advance to third parties | - | 841,803 | ||||||
| Other receivables and prepaid expenses | - | 290,617 | ||||||
| Total current assets | - | 2,949,075 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | - | 1,999,545 | ||||||
| Equity-method investment | - | 357,870 | ||||||
| Intangible assets | - | 1,048,160 | ||||||
| Other investment | - | 1,935,459 | ||||||
| Goodwill | - | 153,128 | ||||||
| Deposit paid for acquisition of a client list | - | 258,061 | ||||||
| Utility and other deposits | - | 93,264 | ||||||
| Total non-current assets | - | 5,845,487 | ||||||
| Total assets | $ | - | $ | 8,794,562 | ||||
| LIABILITIES & STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 253,738 | $ | 253,738 | ||||
| Assets held under capital lease | 10,843 | 10,843 | ||||||
| Accrued liabilities and other payables | 411,044 | 411,044 | ||||||
| Due to a related party | 663,011 | 663,011 | ||||||
| Deposit received | 43,942 | 43,942 | ||||||
| Deferred revenue | 145,159 | 145,159 | ||||||
| Income tax payable | 586,111 | 586,111 | ||||||
| Bank loans - current portion | 569,425 | 569,425 | ||||||
| Total current liabilities | 2,683,273 | 2,683,273 | ||||||
| Non-current liabilities | ||||||||
| Assets held under capital lease, net of current portion | 20,987 | 20,987 | ||||||
| Deferred revenue, net of current portion | 290,319 | 290,319 | ||||||
| Bank loans, net of current portion | 3,557,314 | 3,557,314 | ||||||
| Loan from a related party | 645,268 | 645,268 | ||||||
| Total non-current liabilities | 4,513,888 | 4,513,888 | ||||||
| Total liabilities | 7,197,161 | 7,197,161 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity | ||||||||
authorized, none issued and outstanding Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 35,337,805 shares issued and outstanding as of August 31, 2014 and 25,000,000 shares issued and outstanding as of August 31, 2013 | 3,534 | 3,534 | ||||||
| Subscription receivable | - | (3,092,458 | ) | |||||
| Additional paid in capital | 3,454,057 | 3,454,057 | ||||||
| Retained earnings (deficit) | (10,654,752 | ) | 1,399,062 | |||||
| Accumulated other comprehensive loss | - | (10,126 | ) | |||||
| Total ADGS Advisory, Inc. stockholders’ equity | (7,197,161 | ) | 1,754,069 | |||||
| Non-controlling interest | - | (156,668 | ) | |||||
| Total equity | (7,197,161 | ) | 1,597,401 | |||||
| Total liabilities and stockholders’ equity | $ | - | $ | 8,794,562 | ||||
The accompanying notes are an integral part of these financial statements.
F-1
(IN US DOLLARS)
February 28, 2014 | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,112,662 | $ | 164,314 | ||||
| Restricted cash | 129,465 | 129,312 | ||||||
| Accounts receivable | 613,169 | 564,773 | ||||||
| Other receivables | 36,821 | 130,835 | ||||||
| Due from a related party | 31,050 | 418,658 | ||||||
| Prepaid expenses | - | 64,071 | ||||||
| Total current assets | 1,923,167 | 1,471,963 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 2,053,329 | 2,088,690 | ||||||
| Equity-method investment | 363,327 | 371,096 | ||||||
| Intangible assets | 850,627 | 793,840 | ||||||
| Goodwill | 475,605 | - | ||||||
| Utility and other deposits | 72,535 | 40,288 | ||||||
| Total non-current assets | 3,815,423 | 3,293,914 | ||||||
| Total assets | $ | 5,738,590 | $ | 4,765,877 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 777,837 | $ | 744,077 | ||||
| Assets held under capital lease | 12,004 | 23,775 | ||||||
| Accrued liabilities and other payables | 197,347 | 218,242 | ||||||
| Deposit received | 2,868 | - | ||||||
| Common stock issuable | 154,872 | - | ||||||
| Deferred revenue | 144,959 | 145,114 | ||||||
| Income tax payable | 262,551 | 152,357 | ||||||
| Consideration payable for acquisition of an intangible asset | 38,656 | - | ||||||
| Bank loans – current portion | 76,531 | 107,548 | ||||||
| Total current liabilities | 1,667,625 | 1,391,113 | ||||||
| Non-current liabilities | ||||||||
| Assets held under capital lease, net of current portion | 88,211 | 88,306 | ||||||
| Deferred revenue, net of current portion | 362,398 | 435,343 | ||||||
| Bank loans, net of current portion | 2,218,602 | 2,179,237 | ||||||
| Loan from a related party | 749,923 | 750,726 | ||||||
| Total non-current liabilities | 3,419,134 | 3,453,612 | ||||||
| Total liabilities | 5,086,759 | 4,844,725 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding | - | - | ||||||
| Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 25,000,000 shares issued and outstanding as of February 28, 2014 and August 31, 2013 | 2,500 | 2,500 | ||||||
| Additional paid in capital | (2,500 | ) | (2,500 | ) | ||||
| Retained earnings | 808,211 | 67,868 | ||||||
| Accumulated other comprehensive loss | (9,091 | ) | (10,364 | ) | ||||
| Total ADGS Advisory, Inc. stockholders’ equity | 799,120 | 57,504 | ||||||
| Non-controlling interest | (147,289 | ) | (136,352 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 5,738,590 | $ | 4,765,877 | ||||
STATEMENTS OF OPERATIONS (UNAUDITED)
(Unaudited)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| November 30, | November 30, | |||||||
| 2014 | 2013 | |||||||
| Revenue | $ | - | $ | 1,126,764 | ||||
| Operating Expenses: | ||||||||
| Direct cost of revenue | 543,959 | |||||||
| Administrative expenses | - | 214,281 | ||||||
| Total operating expenses | - | 758,240 | ||||||
| Income (loss) from operations | - | 368,524 | ||||||
| Other (income) expense | ||||||||
| Other income | (34,788 | ) | ||||||
| Loss on disposal of assets | 12,053,814 | |||||||
| Interest expense | - | 28,284 | ||||||
| Other (income) expense, net | 12,053,814 | (6,504 | ) | |||||
| Income (loss) before provision for income taxes | (12,053,814 | ) | 375,028 | |||||
| Tax Provision | - | 13,349 | ||||||
| Net (Loss) | $ | (12,053,814 | ) | 361,679 | ||||
| Basic and diluted earnings(loss) per common share | $ | (0.48 | ) | $ | 0.01 | |||
| Weighted average number of shares outstanding | 25,000,000 | 25,000,000 | ||||||
The accompanying notes are an integral part of these financial statements.
F-2
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| February 28, | February 28, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (A) | (A) | |||||||||||||||
| Revenue | $ | 1,441,268 | $ | 1,296,035 | $ | 2,601,278 | $ | 1,905,634 | ||||||||
| Less: Operating expenses: | ||||||||||||||||
| Direct cost of revenue | (586,401 | ) | (603,608 | ) | (1,131,827 | ) | (967,039 | ) | ||||||||
| General and administrative expenses | (388,920 | ) | (275,946 | ) | (601,734 | ) | (486,355 | ) | ||||||||
| Total operating expenses | (975,321 | ) | (879,554 | ) | (1,733,561 | ) | (1,453,394 | ) | ||||||||
| Operating income | 465,947 | 416,481 | 867,717 | 452,240 | ||||||||||||
| Other income | 327 | - | 1,869 | - | ||||||||||||
| Other expense: | ||||||||||||||||
| Interest expenses | (26,913 | ) | (33,348 | ) | (55,197 | ) | (62,775 | ) | ||||||||
| Profit before income taxes | 439,361 | 383,133 | 814,389 | 389,465 | ||||||||||||
| Less: Income tax expense | (71,631 | ) | (42,988 | ) | (84,980 | ) | (42,988 | ) | ||||||||
| Net profit before allocation of non-controlling interest | $ | 367,730 | $ | 340,145 | $ | 729,409 | $ | 346,477 | ||||||||
| Net loss attributable to non-controlling interest | 5,160 | 5,674 | 10,934 | 11,345 | ||||||||||||
| Net income attributable to common stockholders | $ | 372,890 | $ | 345,819 | $ | 740,343 | $ | 357,822 | ||||||||
| Earnings per share | ||||||||||||||||
| - Basic and diluted | $ | 0.02 | $ | 6.92 | $ | 0.03 | $ | 7.16 | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| - Basic and diluted | 25,000,000 | 50,000 | 25,000,000 | 50,000 | ||||||||||||
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended February 28, | For the Six Months Ended February 28, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (A) | (A) | |||||||||||||||
| Net income | $ | 367,730 | $ | 340,145 | $ | 729,409 | $ | 346,477 | ||||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Foreign currency translation adjustment | (4,652 | ) | (67 | ) | 1,270 | (115 | ) | |||||||||
| Comprehensive income | 363,078 | 340,078 | 730,679 | 346,362 | ||||||||||||
| Add: Comprehensive loss attributable to non-controlling interests | 5,160 | 5,674 | 10,934 | 11,345 | ||||||||||||
| Comprehensive income attributable to ADGS Advisory, Inc. | $ | 368,238 | $ | 345,752 | $ | 741,613 | $ | 357,707 | ||||||||
(unaudited)
| Common Stock | Paid in | Retained | Subcriptions Receivable, | Total Stockholders’ | ||||||||||||||||||||
| Shares | Value | Capital | Earnings | net | Equity | |||||||||||||||||||
| Balance, August 31, 2013 | 25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | (72,926 | ) | $ | - | $ | (72,926 | ) | ||||||||||
| Net loss | 361,679 | 361,679 | ||||||||||||||||||||||
| Balance, November 30, 2013 | 25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | 288,753 | $ | - | $ | 288,753 | ||||||||||||
| Common Stock | Paid in | Retained | Subcriptions Receivable, | Total Stockholders’ | ||||||||||||||||||||
| Shares | Value | Capital | Earnings | net | Equity | |||||||||||||||||||
| Balance, August 31, 2014 | 35,337,805 | $ | 3,534 | $ | 3,454,057 | $ | 1,399,062 | $ | (3,259,252 | ) | $ | 1,597,401 | ||||||||||||
| Change in subscription receivable | 3,259,252 | 3,259,252 | ||||||||||||||||||||||
| Net loss | (12,053,814 | ) | (12,053,814 | ) | ||||||||||||||||||||
| Balance, November 30, 2014 | 35,337,805 | $ | 3,534 | $ | 3,454,057 | $ | (10,654,752 | ) | $ | - | $ | (7,197,161 | ) | |||||||||||
F-3
Preferred shares with US$0.0001 Par Value | Common Stock, with US$0.0001 Par Value | Additional paid- | Accumulated Other | Non- | ||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | in capital Amount | Comprehensive (loss)/income | Retained Earnings | controlling Interest | Total Equity | ||||||||||||||||||||||||||||
| Balance as of August 31, 2013 | - | - | 25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | (10,364 | ) | $ | 67,868 | $ | (136,352 | ) | $ | (78,848 | ) | |||||||||||||||||
| Net profit/(loss) | - | - | - | - | - | - | 740,343 | (10,934 | ) | 729,409 | ||||||||||||||||||||||||||
| Foreign translation gain/(loss) | - | - | - | - | - | 1,273 | - | (3 | ) | 1,270 | ||||||||||||||||||||||||||
| Balance as of February 28, 2014 | - | - | 25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | (9,091 | ) | $ | 808,211 | $ | (147,289 | ) | $ | 651,831 | ||||||||||||||||||
STATEMENTS OF CASH FLOWS (UNAUDITED)
(Unaudited)
| Three Months | Three Months | |||||||
| Ended | Ended | |||||||
| November 30, | November 30, | |||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net profit/(loss) | $ | (12,053,814 | ) | $ | 361,679 | |||
| (12,053,814 | ) | 361,679 | ||||||
| Adjustments to reconcile net profit/(loss) to net cash provided by operating activities: | ||||||||
| Loss on disposal of assets | 12,053,814 | |||||||
| Depreciation of property and equipment | - | 25,818 | ||||||
| Equity in loss of equity-method investment | - | 2,728 | ||||||
| Amortization of intangible assets | - | 49,013 | ||||||
| Changes in assets and liabilities: | ||||||||
| Utility and other deposits | - | (32,323 | ) | |||||
| Accounts receivable | - | (61,483 | ) | |||||
| Other receivables | - | (57,913 | ) | |||||
| Prepaid expenses | - | - | ||||||
| Income tax payable | - | 13,349 | ||||||
| Accrued liabilities | - | (35,081 | ) | |||||
| Deferred revenue | - | (36,276 | ) | |||||
| Net cash provided by operating activities | - | 229,511 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of an intangible asset, net of cash acquired | - | (38,705 | ) | |||||
| Acquisition of subsidiary, net of cash acquired | - | (112,826 | ) | |||||
| Cash paid for property and equipment | - | (18,071 | ) | |||||
| Net cash used in investing activities | - | (169,602 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Repayment of advances made and expenses paid on behalf of a | ||||||||
| related party | - | 209,601 | ||||||
| Proceeds from bank loans and bank overdraft | - | - | ||||||
| Repayment of bank loans | - | (30,641 | ) | |||||
| Net increase in restricted cash | - | (292 | ) | |||||
| Net increase in bank overdraft | - | 74,398 | ||||||
| Repayment of capital lease obligations | - | (5,846 | ) | |||||
| Net cash provided by / (used in) financing activities | 247,220 | |||||||
| Net increase in cash | - | 307,129 | ||||||
| Effect on change of exchange rates on cash | - | 182 | ||||||
| Cash as of the beginning of the period | - | 164,314 | ||||||
| Cash as of the end of period | $ | - | $ | 471,625 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Bank loan interest paid | $ | - | $ | 14,663 | ||||
| Capital lease interest | $ | - | $ | 990 | ||||
The accompanying notes are an integral part of these financial statements.
F-4
For the Six Months Ended February 28, | ||||||||
| 2014 | 2013 | |||||||
| (A) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 740,343 | $ | 357,822 | ||||
| Add: Net loss attributable to non-controlling interest | (10,934 | ) | (11,345 | ) | ||||
| 729,409 | 346,477 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation of property and equipment | 53,431 | 15,243 | ||||||
| Amortization of intangible assets | 98,003 | 89,750 | ||||||
| Equity in loss of equity-method investment | 5,455 | 5,424 | ||||||
| Changes in assets and liabilities: | ||||||||
| Account receivable | (49,038 | ) | (123,304 | ) | ||||
| Other receivables | 93,945 | - | ||||||
| Utility and other deposits | (32,315 | ) | 1,282 | |||||
| Prepaid expenses | 64,051 | (51,932 | ) | |||||
| Deposit received | 2,870 | - | ||||||
| Accrued liabilities | (20,677 | ) | 125,170 | |||||
| Temporary receipts | - | 2,596 | ||||||
| Income tax payable | 110,440 | 42,988 | ||||||
| Deferred revenue | (72,534 | ) | - | |||||
| Net cash provided by operating activities | 983,040 | 453,694 | ||||||
| Cash flows from investing activities: | ||||||||
| Cash paid for property and equipment | (18,066 | ) | (133,366 | ) | ||||
| Acquisition of an intangible asset, net of cash acquired | (116,104 | ) | - | |||||
| Acquisition of a subsidiary, net of cash acquired | (475,605 | ) | - | |||||
| Net cash used in investing activities | (609,775 | ) | (133,366 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Receipt for shares issuable | 154,988 | - | ||||||
| Bank fixed deposit | (292 | ) | (128,215 | ) | ||||
| Advances made and expenses paid on behalf of a related party | - | (2,990,814 | ) | |||||
| Repayment of advances made and expenses paid on behalf of a related party | 387,159 | 1,342,554 | ||||||
| Proceeds from bank loans | 86,132 | 1,223,171 | ||||||
| Repayment of bank loans | (75,325 | ) | (85,672 | ) | ||||
| Proceeds from capital lease | - | 53,461 | ||||||
| Repayment of capital lease | (11,754 | ) | (17,014 | ) | ||||
| Net increase in bank overdraft | 34,582 | 498,511 | ||||||
| Net cash provided by/(used in) financing activities | 757,490 | (104,018 | ) | |||||
| Net increase in cash | 948,755 | 216,310 | ||||||
| Effect on change of exchange rates on cash | (407 | ) | 5 | |||||
| Cash as of Beginning of period | 164,314 | 129,001 | ||||||
| Cash as of End of period | $ | 1,112,662 | $ | 345,316 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Bank loan interest paid | $ | 27,840 | $ | 55,944 | ||||
| Capital lease interest paid | $ | 1,915 | $ | 896 | ||||
| Income tax paid | $ | - | $ | - | ||||
| Analysis of the balances of cash and cash equivalents | ||||||||
| Cash and bank balance | $ | 1,112,662 | $ | 345,316 | ||||
| 1. | Description of business and organization |
Nature of operations
ADGS Advisory, Inc. (“the Company” or “ADGS”) was incorporated in the State of Delaware in September 2007 under the name Life Nutrition Products, Inc. Pursuant to a Certificate of Amendment to its Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, the Company changed its corporate name from “Life Nutrition Products, Inc.” to “ADGS Advisory, Inc.”.
The Company has been dormant since it filed its Form 10-K on February 12, 2015 for period ended August 31, 2014. For financial statement purposes, on subsequent filings, all assets on the Company entered into a share exchange agreement (the “Original Exchange Agreement”) with ADGS Advisory Limited, a Hong Kong corporation (“ADGS Hong Kong”)Company’s balance sheet as of August 31, 2014 were considered disposed of or written down; and ADGS Advisory (Holding) Limited, a British Virgin Islands corporation (“ADGS”). Pursuantall liabilities remained on the Company’s balance sheet. Therefore, as result the Company’s auditors have disclaimed the unaudited interim financial statements included in this Report.
With the exception of the Going Concern footnote, the footnotes to the Original Exchange Agreement, at the closingfinancial statements have not been updated and all assets accounts are considered to have a zero balance, and all liability account balances as of August 31, 2014 remain unchanged as of the transaction contemplated thereunder (the “ADGS Transaction”), the Company agreed to acquire 100%date of the issued and outstanding capital stock of ADGS, making ADGS a wholly-owned subsidiary of the Company. On March 28, 2013, the Company entered into an amendment (the “Amendment”) to the Original Exchange Agreement (the Original Exchange Agreement, as amended is referred to herein as the “Exchange Agreement”) pursuant to which the Company agreed to acquire all of the outstanding shares of Almonds Kisses Limited (BVI), a British Virgin Islands company (“Almonds Kisses BVI”), from the eight shareholders of Almonds Kisses BVI (the “Shareholders”), instead of the shares of ADGS, on the same terms and conditions set forth in the Exchange Agreement. Almonds Kisses BVI is the owner of 100% of the issued and outstanding capital stock of ADGS. The Original Exchange Agreement incorrectly indicated that such owner was ADGS Holdings which error was corrected in the Amendment.
Summary of significant accounting policies |
Basis of presentation
These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these interim consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended August 31, 2013, as filed in Form 10-K with the Securities and Exchange Commission on December 24, 2013.
The unaudited condensed consolidated financial statements include all accounts of the Company and its subsidiaries as disclosed in noteNote 1. All material inter-company balances and transactions have been eliminated.
As both the Company and its subsidiaries, ADGS and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to periods prior to the assets and liabilities are that of the Company’s operating subsidiaries.
Going concern
The accompanying consolidated financial statements are presented on a going concern basis. Although theThe Company has a working capital surplusdeficit of $255,542$7,197,161 at February 28, 2014, managementNovember 30, 2014. Management plans to continue its efforts to raise funds through debt or equity in the near future and increaseimprove its profitability to sustain its operations.
F-5
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Foreign currency translation
The Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in their respective functional currency, Hong Kong dollars (“HK$”), being the lawful currency in Hong Kong. Assets and liabilities of the subsidiaries are translated from H.K. Dollars into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income included in the stockholders’ equity section of the balance sheets. The exchange rates used to translate amounts in HKD into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:
| February 28, | February 28, | |||
| 2014 | 2013 | |||
| (Unaudited) | (Unaudited) | |||
| Items in statements of income and cash flows for the three months ended | HK$7.7566=$1 | HK$7.7993=$1 | ||
| Items in statements of income and cash flows for the six months ended | HK$7.7550=$1 | HK$7.7994=$1 |
November 30, 2013 | August 31, 2013 | ||
| (Unaudited) | |||
| Balance sheet items, except for equity accounts | HK$7.7525=$1 | HK$7.7525=$1 | |
| November 30, | November 30, | ||
| 2013 | 2012 | ||
| (Unaudited) | |||
| Items in statements of income and cash flows for the three months ended | HK$7.7530=$1 | HK$7.7554=$1 |
Revenue recognition
The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.
| (i) | Revenue generates from providing accounting, taxation, company secretarial and consultancy services is recognized when persuasive evidence of an arrangement exists, the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. The Group generates its revenues from providing professional services under fixed-fee billing arrangements. |
In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay a fixed-fee in monthly installments over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.
| (ii) | Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. |
| (iii) | Rental income Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. |
F-6
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Revenue recognition (…/Cont’d)
| (iv) | Management fee income The Company recognizes the management fee income when service is provided. Services include providing administration support service or accounting service to companies. |
Direct cost of revenue
Direct costs of revenues generated from providing accounting, taxation, company secretarial and consultancy services consists primarily of billable employee compensation and related payroll benefits, the cost of consultants assigned to revenue generating activities and direct expenses billable to clients. Direct cost of revenues does not include an allocation of overhead costs.
Direct costs from providing consultancy service for slope inspections under fixed price contracts are recognized, as the related contact costs are incurred.
Cash
Cash represents cash in banks and cash on hand.
The Group considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Substantially all of the cash deposits of the Group are held with financial institutions located in the Hong Kong, PRC. Management believes these financial institutions are of high credit quality. The group held no cash equivalents at February 28, 2014November 30, 2013 and August 31, 2013.
Restricted cash
Restricted cash represents cash in banks were restricted and deposited in certain banks as security for installment loans payable to the banks.
Accounts receivable
Accounts receivable are recorded at invoiced amounts, net of allowances for doubtful accounts and discounts. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. Management determines the allowance based on historical write-off experience, customer specific facts and economic conditions. The Group historically has been able to collect all of its receivable balances.
Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure to its customers.
F-7
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Deferred revenue
The Company entered into a contract with a third party to provide corporate advisory and consulting services. The agreement has a fixed term of four years, and is renewable upon maturity. These fees are deferred and are amortized to income as earned over the term of the agreement. Deferred revenue that will be recognized in next fiscal year is classified within current liabilities.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as incurred; major renewals and improvements that extend the lives or increase the capacity of plant assets are capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the reporting period of disposition.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value.
The estimated useful lives of the assets are as follows:
| Estimated Life | ||
| Investment property | Over the unexpired term of the lease | |
| Leasehold improvement | 5 years | |
| Furniture and fixtures | 5 years | |
| Office equipment | 5 years | |
| Motor vehicles | 5 years |
Equity-method investment
Affiliated companies, in which the Company has significant influence, but not control, are accounted for equity-method investment. Equity-method investment adjustments include the Company’s proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, adjustments to recognize certain differences between the Company’s carrying value and the Company’s equity in net assets of the investee at the date of investment, impairments, and other adjustments required by the equity method. Gain or losses are realized when such investments are sold.
Non-controlling interest
Non-controlling interests represents the 20% interest in ADGS Tax not owned by Almonds Kisses.
F-8
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Purchased intangible assets
The Group assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
- significant underperformance relative to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy for our overall business;
- identification of other impaired assets within a reporting unit;
- disposition of a significant portion of an operating segment;
- significant negative industry or economic trends;
The intangible assets are amortized using the straight line method over a period of 10 years.
Purchased goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.
Positive goodwill arising on acquisitions is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortized but is tested annually for impairment.
Decreases in goodwill resulting from the non-payment of contingent consideration are recognized in the period when non-payment occurs.
Negative goodwill arising on an acquisition is recognized directly in profit or loss.
The Group assesses the useful lives and possible impairment of existing goodwill when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
- significant underperformance relative to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy for our overall business;
- identification of other impaired assets within a reporting unit;
- disposition of a significant portion of business;
- significant negative industry or economic trends;
Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an accrual basis or when indications of impairment exist.
Assets under capital lease
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Depreciation expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
F-9
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Comprehensive income
Comprehensive income includes net income and also considers the effect of other changes to stockholders'stockholders’ equity that are not included in the determination of net income, but rather are reported as a separate component of stockholders'stockholders’ equity. The Group reports foreign currency translation adjustments and unrealized gains and losses on investments (those which are considered temporary) as components of comprehensive income.
Earnings per share
Basic earnings per share is computed on the basis of the weighted-average number of shares of the Company’s common stock outstanding during the fiscal years. Diluted earnings per share is computed on the basis of the weighted-average number of shares of the common stock plus any effect of dilutive potential common shares outstanding during the period using the if-converted method.
Income taxes
The Group accounts for income taxes under FASB ASC Topic 740 "Income Taxes"“Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.
The Group records uncertain tax positions when it is more likely than not that the tax positions will not be sustained upon examination by the respective tax authority.
The Group recognizes interest and penalty related to income tax matters as income tax expense. For the six months ended February 28, 2014As of November 30, 2013 and 2013,2012, there was no penalty or interest recognized as income tax expenses.
F-10
| ADGS ADVISORY, INC. | ||||
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | ||||
| (IN US DOLLARS) |
| 2. | Summary of significant accounting policies (…/Cont’d) |
Employee benefits
| i) | Salaries, wages, annual bonuses, paid annual leave and staff welfare are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. |
| ii) | Contributions to appropriate local contribution retirement schemes pursuant to the relevant labor rules and regulations in Hong Kong which are charged to the cost of sales and general and administrative expenses in the statement of operation as and when the related employee service is provided. The Group incurred |
Fair value measurements
FASB ASC Topic 820, “Fair Value Measurement and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liabilityliability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Group. Unobservable inputs reflect the Group’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
| Level 1 - | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. |
| Level 2 - | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. |
| Level 3 - | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The Group’s financial instruments consist principally of cash, accounts receivable, accounts payable, bank loans, and accrued liabilities. Pursuant to ASC 820, the fair value of the Group’s cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Group believes that the carrying amounts of all of the Group’s other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
F-11
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 3. | BUSINESS SEGMENTS |
| A) | Business segment reporting - by product |
The Company has three (3) reportable business segments:
providing accounting, taxation, company secretarial, consultancy services, and consultancy service for slopeThe following tables set forth the Company'sCompany’s four main segments:
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi- Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Three months ended November 30, 2013 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 279,642 | $ | 24,524 | $ | 822,598 | $ | - | $ | 1,126,764 | ||||||||||
| Cost of sales | (167,697 | ) | (27,804 | ) | (348,458 | ) | - | (543,959 | ) | |||||||||||
| Administrative expense | (53,180 | ) | (4,664 | ) | (156,437 | ) | - | (214,281 | ) | |||||||||||
| Gross (profit) / loss | 58,765 | (7,944 | ) | 317,703 | - | 368,524 | ||||||||||||||
| �� | ||||||||||||||||||||
| Other income | 8,634 | 757 | 25,397 | - | 34,788 | |||||||||||||||
| Finance cost | (7,019 | ) | (616 | ) | (20,649 | ) | - | (28,284 | ) | |||||||||||
| Income before income taxes | 60,380 | (7,803 | ) | 322,451 | - | 375,028 | ||||||||||||||
| Income tax | (3,313 | ) | (291 | ) | (9,745 | ) | - | (13,349 | ) | |||||||||||
| Net income | $ | 57,067 | $ | (8,094 | ) | $ | 312,706 | $ | - | $ | 361,679 | |||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi- Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Total assets | $ | 1,234,312 | $ | 99,433 | $ | 2,838,623 | $ | 1,509,591 | $ | 5,681,959 | ||||||||||
| Total liabilities | $ | 895,340 | $ | 73,788 | $ | 2,696,894 | $ | 1,727,184 | $ | 5,393,206 | ||||||||||
F-12
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Three months ended February 28, 2014 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 417,329 | $ | 26,166 | $ | 997,773 | $ | - | $ | 1,441,268 | ||||||||||
| Direct cost of revenue | (159,613 | ) | (34,526 | ) | (392,262 | ) | - | (586,401 | ) | |||||||||||
| Administrative expense | (112,614 | ) | (7,061 | ) | (269,245 | ) | - | (388,920 | ) | |||||||||||
| Gross profit/(loss) | 145,102 | (15,421 | ) | 336,266 | - | 465,947 | ||||||||||||||
| Other income | 95 | 6 | 226 | - | 327 | |||||||||||||||
| Finance cost | (7,793 | ) | (489 | ) | (18,631 | ) | - | (26,913 | ) | |||||||||||
| Income/(loss) before income taxes | 137,404 | (15,904 | ) | 317,861 | - | 439,361 | ||||||||||||||
| Income tax | (20,742 | ) | (1,300 | ) | (49,589 | ) | - | (71,631 | ) | |||||||||||
| Net income/(loss) | $ | 116,662 | $ | (17,204 | ) | $ | 268,272 | $ | - | $ | 367,730 | |||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Total assets | $ | 1,716,361 | $ | 47,056 | $ | 3,278,687 | $ | 696,486 | $ | 5,738,590 | ||||||||||
| Total liabilities | $ | 955,529 | $ | 60,465 | $ | 2,711,268 | $ | 1,359,497 | $ | 5,086,759 | ||||||||||
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 3. | BUSINESS SEGMENTS (…../Cont’d) |
| A) | Business segment reporting - by product (…../Cont’d) |
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi- Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Three months ended November 30, 2012 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 286,549 | $ | 248,287 | $ | 74,763 | $ | - | $ | 609,599 | ||||||||||
| Cost of sales | (153,016 | ) | (159,933 | ) | (50,482 | ) | - | (363,431 | ) | |||||||||||
| Administrative expense | (98,905 | ) | (85,699 | ) | (25,805 | ) | - | (210,409 | ) | |||||||||||
| Gross profit/(loss) | 34,628 | 2,655 | (1,524 | ) | - | 35,759 | ||||||||||||||
| Other income | - | - | - | - | - | |||||||||||||||
| Finance cost | (13,833 | ) | (11,985 | ) | (3,609 | ) | - | (29,427 | ) | |||||||||||
| Income/(loss) before income taxes | 20,795 | (9,330 | ) | (5,133 | ) | - | 6,332 | |||||||||||||
| Income tax | - | - | - | - | - | |||||||||||||||
| Net income/(loss) | $ | 20,795 | $ | (9,330 | ) | $ | (5,133 | ) | $ | - | $ | 6,332 | ||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi- Disciplinary Advisory | Inter-group Re-allocation | Corporate & Other Income | Total | |||||||||||||||||||
| Total assets | $ | 1,905,154 | $ | 1,650,765 | $ | 780,130 | $ | (879,109 | ) | $ | - | $ | 3,456,940 | |||||||||||
| Total liabilities | $ | 1,947,899 | $ | 1,687,802 | $ | 1,387,332 | $ | (879,109 | ) | $ | - | $ | 4,143,924 | |||||||||||
F-13
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Three months ended February 28, 2013 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 251,079 | $ | 832,770 | $ | 212,186 | $ | - | $ | 1,296,035 | ||||||||||
| Direct cost of revenue | (125,032 | ) | (438,706 | ) | (39,870 | ) | - | (603,608 | ) | |||||||||||
| Administrative expense | (53,459 | ) | (177,309 | ) | (45,178 | ) | - | (275,946 | ) | |||||||||||
| Gross profit | 72,588 | 216,755 | 127,138 | - | 416,481 | |||||||||||||||
| Other income | - | - | - | - | - | |||||||||||||||
| Finance cost | (6,460 | ) | (21,428 | ) | (5,460 | ) | - | (33,348 | ) | |||||||||||
| Income before income taxes | 66,128 | 195,327 | 121,678 | - | 383,133 | |||||||||||||||
| Income tax | (8,328 | ) | (27,622 | ) | (7,038 | ) | - | (42,988 | ) | |||||||||||
| Net income | $ | 57,800 | $ | 167,705 | $ | 114,640 | $ | - | $ | 340,145 | ||||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Total assets | $ | 856,599 | $ | 3,036,888 | $ | 168,687 | $ | - | $ | 4,062,174 | ||||||||||
| Total liabilities | $ | 805,813 | $ | 2,856,836 | $ | 746,428 | $ | - | $ | 4,409,077 | ||||||||||
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Six months ended February 28, 2014 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 696,971 | $ | 50,690 | $ | 1,853,617 | $ | - | $ | 2,601,278 | ||||||||||
| Direct cost of revenue | (327,310 | ) | (62,331 | ) | (742,186 | ) | - | (1,131,827 | ) | |||||||||||
| Administrative expense | (165,795 | ) | (11,725 | ) | (424,214 | ) | - | (601,734 | ) | |||||||||||
| Gross profit/(loss) | 203,866 | (23,366 | ) | 687,217 | - | 867,717 | ||||||||||||||
| Other income | 8,729 | 763 | (7,623 | ) | - | 1,869 | ||||||||||||||
| Finance cost | (14,813 | ) | (1,104 | ) | (39,280 | ) | - | (55,197 | ) | |||||||||||
| Income/(loss) before income taxes | 197,782 | (23,707 | ) | 640,314 | - | 814,389 | ||||||||||||||
| Income tax | (24,054 | ) | (1,591 | ) | (59,335 | ) | - | (84,980 | ) | |||||||||||
| Net income/(loss) | $ | 173,728 | $ | (25,298 | ) | $ | 580,979 | $ | - | $ | 729,409 | |||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Total assets | $ | 1,716,361 | $ | 47,056 | $ | 3,278,687 | $ | 696,486 | $ | 5,738,590 | ||||||||||
| Total liabilities | $ | 955,529 | $ | 60,465 | $ | 2,711,268 | $ | 1,359,497 | $ | 5,086,759 | ||||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Six months ended February 28, 2013 | ||||||||||||||||||||
| Segment revenue | ||||||||||||||||||||
| Revenue from external customer | $ | 537,628 | $ | 1,081,057 | $ | 286,949 | $ | - | $ | 1,905,634 | ||||||||||
| Direct cost of revenue | (278,048 | ) | (598,639 | ) | (90,352 | ) | - | (967,039 | ) | |||||||||||
| Administrative expense | (152,364 | ) | (263,008 | ) | (70,983 | ) | - | (486,355 | ) | |||||||||||
| Gross profit | 107,216 | 219,410 | 125,614 | - | 452,240 | |||||||||||||||
| Other income | - | - | - | - | - | |||||||||||||||
| Finance cost | (20,293 | ) | (33,413 | ) | (9,069 | ) | - | (62,775 | ) | |||||||||||
| Income before income taxes | 86,923 | 185,997 | 116,545 | - | 389,465 | |||||||||||||||
| Income tax | (8,328 | ) | (27,622 | ) | (7,038 | ) | - | (42,988 | ) | |||||||||||
| Net income | $ | 78,595 | $ | 158,375 | $ | 109,507 | $ | - | $ | 346,477 | ||||||||||
| Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
| Total assets | $ | 856,599 | $ | 3,036,888 | $ | 168,687 | $ | - | $ | 4,062,174 | ||||||||||
| Total liabilities | $ | 805,813 | $ | 2,856,836 | $ | 746,428 | $ | - | $ | 4,409,077 | ||||||||||
ACQUISITION OF SUBSIDIARY |
Almonds Kisses Limited (“Almonds Kisses”), a wholly owned subsidiary of ADGS Advisory Inc. (the "Company"“Company”) entered into a purchase and sale agreement (the "Purchase Agreement"“Purchase Agreement”) dated October 20, 2013 which was previously filed as Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K filed on October 23, 2013. Pursuant to the Purchase Agreement, the Company agreed to purchase all shares of T H Strategic Management Limited (“T H Strategic”), a Hong Kong, People’s Republic of China incorporated company (the "Acquisition"“Acquisition”) for purchase consideration of approximately $516,000 (HK$4 million). T H Strategic Management Limited is engaged in providing accounting, taxation, company secretarial and consultancy services.
In consideration for acquisition of the issued and outstanding shares of TH Strategic, Almonds Kisses has agreed to pay the seller the sum of about $516,000 (HK$4 million), payable in four equal monthly installments of about $129,000 (HK$1 million) each. Almonds Kisses has fully paid the considerationfirst installment on October 18, 2013, and the remaining installments of acquisition before the end of$129,000 each which will be due on December 15, 2013, January 15, 2014 and February 15, 2014.
The following table summarizes the estimated fair values of tangible assets acquired and liabilities assumed as of the date of the Merger:
| Assets/ (liabilities) | ||||
| Cash | $ | 16,189 | ||
| Account receivables | 89,685 | |||
| Accrual and other payables | (17,544 | ) | ||
| Tax payables | (25,469 | ) | ||
| Due to a related party | (22,504 | ) | ||
| Total identifiable net assets | $ | 40,357 | ||
| Goodwill | 475,605 | |||
| Consideration | $ | 515,962 | ||
As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill will be recognized. Goodwill is calculated as the difference between the Acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. No acquisition related costs incurred in this acquisition.
F-14
| ADGS ADVISORY, INC. | ||||
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | ||||
| (IN US DOLLARS) |
| 5. | CASH |
Cash represents cash in bank and cash on hand. Cash as of February 28, 2014November 30, 2013 and August 31, 2013 consists of the following:
| February 28, | August 31, | |||||||
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| Bank balances and cash | $ | 1,112,662 | $ | 164,314 | ||||
November 30, | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Bank balances and cash | $ | 471,625 | $ | 164,314 | ||||
All cash was maintained in Hong Kong, PRC. In Hong Kong, there are no rules or regulations mandating an obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.
| 6. | RESTRICTED CASH |
As of November 30, 2013 and August 31, 2013 $129,465 ofthe Group’s cash wasamounting to $129,604 and $129,312 respectively, were restricted and deposited in a bank as security for installment loans payable to the bank.
F-15
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 7. | DUE FROM A RELATED PARTY |
The amounts due from the Group CFO are interest free, unsecured and repayable on demand. The Advances to the CFO were funded by Group bank loans. These bank loans were secured by real property owned by the CFO. The activity for such amounts due to shareholders for the period/year ended February 28, 2014November 30, 2013 and August 31, 2013 is as follows:
Period Ended February 28, 2014 | ||||
| (Unaudited) | ||||
| Balance due at September 1, 2013 | $ | 418,658 | ||
| Amount repaid during the period | (387,159 | ) | ||
| Exchange alignment | (449 | ) | ||
| Balance due at February 28, 2014 | $ | 31,050 | ||
Year Ended August 31, 2013 | ||||
| Balance due at September 1, 2012 | $ | 241,036 | ||
| Amount advanced during the year | 4,831,702 | |||
| Amount repaid during the year | (4,655,559 | ) | ||
| Exchange alignment | 1,479 | |||
| Balance due at August 31, 2013 | $ | 418,658 | ||
November 30, | ||||
| (Unaudited) | ||||
| Balance due from a related party at beginning of year | $ | 418,658 | ||
| Amount repaid by her during the period | (209,601 | ) | ||
| Exchange alignment | (136 | ) | ||
| Balance due from a related party at end of period | $ | 208,921 | ||
August 31, 2013 | ||||
| Balance due from a related party at beginning of year | $ | 241,036 | ||
| Amount repaid/advanced to her during the year | 4,831,702 | |||
| Amount repaid by her during the year | (4,655,559 | ) | ||
| Exchange alignment | 1,479 | |||
| Balance due from a related party at end of year | $ | 418,658 | ||
| 8. | LOAN FROM A RELATED PARTY |
The loan from a related party is interest free, unsecured and is due and payable on August 30, 2017.
F-16
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 9. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consist of the following:
| February 28, | August 31, | |||||||
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| Investment property | $ | 1,909,062 | $ | 1,909,062 | ||||
| Leasehold improvement | 103,414 | 85,345 | ||||||
| Furniture and fixtures | 5,632 | 5,632 | ||||||
| Office equipment | 6,730 | 6,730 | ||||||
| Motor vehicle | 145,407 | 145,407 | ||||||
| 2,170,245 | 2,152,176 | |||||||
| Less: Accumulated depreciation | (116,916 | ) | (63,486 | ) | ||||
| $ | 2,053,329 | $ | 2,088,690 | |||||
November 30, | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Investment property | $ | 1,909,061 | $ | 1,909,062 | ||||
| Leasehold improvement | 103,896 | 85,345 | ||||||
| Furniture and fixtures | 5,632 | 5,632 | ||||||
| Office equipment | 6,730 | 6,730 | ||||||
| Motor vehicle | 145,406 | 145,407 | ||||||
| 2,170,725 | 2,152,176 | |||||||
| Less: Accumulated depreciation | (89,783 | ) | (63,486 | ) | ||||
| $ | 2,080,942 | $ | 2,088,690 | |||||
Depreciation expense for the three months ended February 28, 2014November 30, 2013 and 20132012 amounted to $27,613$25,818 and $8,958; for the six months ended February 28, 2014 and 2013 amounted to $53,431 and $15,243$6,285 respectively.
Included in motor vehicle of the Group, the net carrying amount of $105,646 as of February 28, 2014 and $120,183 as of August 31, 2013$112,913 (2012: $21,025) is under capital lease with the related depreciation charge for of $7,267 and $4,075 for the three months ended February 28, 2014November 30, 2013 of $7,270 and 2013; $14,537 and $5,477 for the six months ended February 28, 2014 and 2013 respectively.
The residential property held by Motion Tech is collateral for a banking facility with a maximum amount of $2,063,850 (HK$16 million).
F-17
| ADGS ADVISORY, INC. |
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 10. | ASSETS HELD UNDER CAPITAL LEASES |
The Group leases a motor vehicle that is classified as capital lease. The cost of the motor vehicle under capital leases is included in the Balance Sheets as property and equipment and was $105,646 (net$112,913 ($112,913 net of accumulated depreciation) at February 28, 2014.November 30, 2013. Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of February 28, 2014,November 30, 2013, are as follows:
| Amount | ||||
Year ending August 31, | ||||
| 2014 (Six months) | $ | 13,658 | ||
| 2015 | 27,316 | |||
| 2016 | 27,316 | |||
| 2017 | 27,316 | |||
| 2018 | 10,745 | |||
| Thereafter | - | |||
| Total minimum lease payment | 106,351 | |||
| Less: Imputed interest | (6,136 | ) | ||
| Present value of net minimum lease payments | 100,215 | |||
| Less: Current maturities of capital leases obligations | (12,004 | ) | ||
| Long-term capital leases obligations | $ | 88,211 | ||
| Amount | ||||
| Year ending August 31, | ||||
| 2014 (Nine months) | $ | 22,488 | ||
| 2015 | 27,345 | |||
| 2016 | 27,345 | |||
| 2017 | 27,345 | |||
| 2018 | 10,752 | |||
| Thereafter | - | |||
| Total minimum lease payment | 115,275 | |||
| Less: Imputed interest | (9,041 | ) | ||
| Present value of net minimum lease payments | 106,234 | |||
| Less: Current maturities of capital leases obligations | (23,775 | ) | ||
| Long-term capital leases obligations | $ | 82,459 | ||
INTANGIBLE ASSETS |
Intangible assets consist of customer lists purchased from three unrelated parties pursuant to the agreements dated June 21, 2005, April 28, 2011 and September 30, 2013.
The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the three months ended February 28, 2014November 30, 2013 is $49,013 and 2013 are $48,990 and $44,875; for the six months ended February 28, 2014 and 2013 are $98,003 and $89,750 respectively.2012 is $44,875. The future amortization as of February 28, 2014August 31 will be as follows:
| Amount | ||||
| Year ending August 31, | ||||
| 2014 (Nine months) | $ | 164,452 | ||
| 2015 | 219,270 | |||
| 2016 | 87,063 | |||
| 2017 | 116,084 | |||
| 2018 | 73,520 | |||
| Thereafter | 245,125 | |||
| $ | 905,514 | |||
F-18
| Amount | ||||
| Year ending August 31, | ||||
| 2014 (Six months) | $ | 97,928 | ||
| 2015 | 194,191 | |||
| 2016 | 92,774 | |||
| 2017 | 92,774 | |||
| 2018 | 92,774 | |||
| Thereafter | 280,186 | |||
| $ | 850,627 | |||
| ADGS ADVISORY, INC. |
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 12. | INCOME TAXES EXPENSES |
The entities that comprise the Group file separate tax returns in the respective tax jurisdictions that they operate. The Company files income tax returns in the U.S. federal and state, and foreign jurisdictions such as Hong Kong, People’s Republic of China. The Inland Revenue Department of Hong Kong, People’s Republic of China would have a 7 year period that it could make changes on tax returns filed.
The Company is domiciled in the State of Delaware, U.S.A.. No provision for U.S.A. profits tax has been made as the Company has sustained losses.
The Company’s subsidiary, Almonds Kisses is domiciled in the British Virgin Islands, the law of which does not require the company to pay any income taxes or other taxes based on income, business activity or assets.
The Company’s subsidiary, Motion Tech is domiciled in the British Virgin Islands, the law of which does not require the company to pay any income taxes or other taxes based on income, business activity or assets.
The Company’s subsidiary, ADGS Advisory Limited, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $12,955 has been made for the three months ended November 30, 2013. No provision for Hong Kong profits tax has been made for 2012, as the subsidiary sustained tax losses in that period.
The Company’s subsidiary, ADGS Tax Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the three months ended November 30, 2013 and 2012.
The Company’s subsidiary, Vantage Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the three months ended November 30, 2013.
The Company’s subsidiary, T H Strategic Management Limited acquired on October 20, 2013, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $3,785$394 has been made for the sixthree months ended February 28, 2014.November 30, 2013.
F-19
| ADGS ADVISORY, INC. |
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 12. | INCOME TAXES EXPENSES (…/Cont’d) |
The Company'sCompany’s income tax for the sixthree months ended February 28, 2014November 30, 2013 and 20132012 can be reconciled to the income before income tax expenses in the statement of operations as follows:
For the Three months ended February 28, | For the Six months ended February 28, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Income before tax | $ | 439,361 | $ | 383,133 | $ | 814,389 | $ | 389,465 | ||||||||
Expected Hong Kong income tax expense at statutory tax rate of 16.5% | $ | 72,495 | $ | 63,217 | $ | 134,375 | $ | 64,262 | ||||||||
| Temporary difference | (35,086 | ) | (3,528 | ) | (73,679 | ) | (3,240 | ) | ||||||||
| Utilization of tax losses | - | (21,382 | ) | 193 | (27,394 | ) | ||||||||||
| Unrealised tax loss | 34,222 | 4,681 | 24,091 | 9,360 | ||||||||||||
| Actual income tax expense | $ | 71,631 | $ | 42,988 | $ | 84,980 | $ | 42,988 | ||||||||
| For the three months ended November 30, 2013 | For the three months ended November 30, 2012 | |||||||
| Profit before tax | $ | 375,028 | $ | 6,332 | ||||
| Expected Hong Kong income tax expense at statutory tax rate of 16.5% | 15,470 | 1,044 | ||||||
| Temporary difference | (2,121 | ) | (1,044 | ) | ||||
| Actual income tax expense | $ | 13,349 | $ | - | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| February 28, 2014 | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Deferred tax asset: | ||||||||
| Unrecognized tax losses | $ | - | $ | - | ||||
| Deferred tax liability: | ||||||||
| Difference between book and tax depreciation | $ | 1,242 | $ | 2,340 | ||||
November 30, 2013 | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Deferred tax asset: | ||||||||
| Unrecognized tax losses | $ | - | $ | - | ||||
| Deferred tax liability: | ||||||||
| Difference between book and tax depreciation | $ | - | $ | 2,340 | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Other major temporary differences that give rise to the deferred tax assets and liabilities are net operating losses carry forwards. As the amounts are immaterial as of February 28, 2014November 30, 2013 and August 31, 2013, no deferred taxes have been provided for in the accounts.
F-20
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 13. | BANK LOANS |
The details of the bank loans outstanding as of February 28, 2014November 30, 2013 (unaudited) are as follows:
| Outstanding loan | Current annualized | |||||||||||
| Name of bank | amount | interest rate | Nature of loans | Term of loans | Collateral | |||||||
| Shanghai Commercial Bank (“SCB”) | US$936,258 (HK$7,258,338) | SCB annual rate of 3% | Term loan | January 30, 2012 to December 31, 2035 | Property and personal guarantee from related party and third party | |||||||
| Hang Seng Bank (“HSB”) | US$125,664 (HK$974,208) | HSB monthly rate of 0.38% | Term loan | June 27, 2012 to June 26, 2017 | Property and personal guarantee from related party and third party | |||||||
| Hitachi Capital (HK) Ltd (“HC”) | US$2,539 (HK$19,688) | HC annual rate of 6.98% | Term loan | June 29, 2012 to November 25, 2013 | Personal guarantee from related party | |||||||
| DBS | US$1,191,681 (HK$9,238,510) | DBS annual rate of 2.75% | Term loan | November 12, 2012 to 12 October, 2037 | Property and personal guarantee from related party | |||||||
| $ | 2,256,142 | |||||||||||
The details of the bank loans outstanding as of August 31, 2013 are as follows:
| Outstanding loan | Current annualized | |||||||||||
| Name of bank | amount | interest rate | Nature of loans | Term of loans | Collateral | |||||||
| Shanghai Commercial Bank (“SCB”) | US$943,651 (HK$7, 315,652) | SCB annual rate of 3% | Term loan | January 30, 2012 to December 31, 2035 | Property and personal guarantee from related party and third party | |||||||
| Hang Seng Bank (“HSB”) | US$136,863 (HK$1,061,028) | HSB monthly rate of 0.38% | Term loan | June 27, 2012 to June 26, 2017 | Property and personal guarantee from related party and third party | |||||||
| Hitachi Capital (HK) Ltd (“HC”) | US$5,573 (HK$43,204) | HC annual rate of 6.98% | Term loan | June 29, 2012 to November 25, 2013 | Personal guarantee from related party | |||||||
| DBS | US$1,200,698 (HK$9,308,419) | DBS annual rate of 2.75% | Term loan | November 12, 2012 to 12 October, 2037 | Property and personal guarantee from related party | |||||||
| $ | 2,286,785 | |||||||||||
F-21
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 13. | BANK LOANS (…../Cont’d) |
Interest expenses for the three months ended February 28, 2014November 30, 2013 and 2013 are $13,1772012 amounted to $14,663 and $26,684; six months ended February 28, 2014 and 2013 are $27,840 and $55,944$29,260 respectively.
Bank loans repayment schedule is as follows:
| February 28, 2014 | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Year ending August 31, | ||||||||
| 2014 (Six months) | $ | 76,531 | $ | 107,548 | ||||
| 2015 | 149,718 | 114,303 | ||||||
| 2016 | 119,244 | 118,253 | ||||||
| 2017 | 85,557 | 90,382 | ||||||
| 2018 | 74,406 | 79,363 | ||||||
| Thereafter | 1,789,677 | 1,776,936 | ||||||
| $ | 2,295,133 | $ | 2,286,785 | |||||
November 30, 2013 | August 31, 2013 | |||||||
| Year ending August 31, | ||||||||
| 2014 (Nine months) | 76,905 | 107,548 | ||||||
| 2015 | 114,303 | 114,303 | ||||||
| 2016 | 118,253 | 118,253 | ||||||
| 2017 | 90,382 | 90,382 | ||||||
| 2018 | 79,363 | 79,363 | ||||||
| Thereafter | 1,776,936 | 1,776,936 | ||||||
| $ | 2,256,142 | $ | 2,286,785 | |||||
The bank loans as outlined in the aforementioned tables are secured by the directors'directors’ and third parties'parties’ properties and personal guarantees.
F-22
| ADGS ADVISORY, INC. |
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 14. | DEFERRED REVENUE |
| February 28, 2014 | August 31, 2013 | |||||||
| (Unaudited) | ||||||||
| Deferred revenue – current portion | $ | 144,959 | $ | 145,114 | ||||
| Deferred revenue – net of current portion | 362,398 | 435,343 | ||||||
| $ | 507,357 | $ | 580,457 | |||||
November 30, | August 31, 2013 | |||||||
| Deferred revenue – current portion | $ | 145,114 | $ | 145,114 | ||||
| Deferred revenue – net of current portion | 399,065 | 435,343 | ||||||
| $ | 544,179 | $ | 580,457 | |||||
The Company has an agreement with a third party for consultancy services with a fixed fee and term of four years, renewable upon expiration. Deferred revenue to be recognized in next fiscal year (2014) is classified as current liabilities with the remaining balance classified as a non-current liabilities.
| 15. | CONCENTRATIONS OF RISK |
The Group'sGroup’s credit risk is somewhat limited due to a relatively large customer base. During the three- and six-three months ended February 28, 2014November 30, 2013 and the year ended August 31, 2013, the Group had no customer which accounted for 10% or more of total revenue or 10% or more of total accounts receivable at February 28, 2014 or August 31, 2013.
RELATED PARTY TRANSACTIONS |
Significant operating expenses arising from transaction with a related company was as follows.
For the three months ended February 28, 2014 | For the three months ended February 28, 2013 | For the six months ended February 28, 2014 | For the six months ended February 28, 2013 | |||||||||||||
| Revenue:- | ||||||||||||||||
| Accounting & corporate services | $ | 102,121 | $ | - | $ | 176,699 | $ | - | ||||||||
| Multi-disciplinary Advisory | 515,542 | 973,002 | - | |||||||||||||
| $ | 617,663 | $ | - | $ | 1,149,701 | $ | - | |||||||||
| Direct cost of revenue:- | ||||||||||||||||
| Multi-Disciplinary Advisory | $ | 28,821 | $ | - | $ | 63,426 | $ | - | ||||||||
| For the three months ended November 30, 2013 | For the three months ended November 30, 2012 | |||||||
| Sub-contracting fee | 24,935 | 107,534 | ||||||
These balances primarily represent revenue and directsub-contracting fees included as part of the cost of revenue, which transactions relatedrevenues to the Company'sCompany’s Chief Operating Officer and related partiesa company controlled by one of the Company’s directors for the three and six months ended February 2014November 2013 and 2013.
See Notes 7 and 8 for discussion of advances to and from related parties.
F-23
| ADGS ADVISORY, INC. |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| (IN US DOLLARS) |
| 17. | COMMITMENTS AND CONTINGENCIES |
Commitments and contingencies
| (a) | In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising within the normal course of businesses that relate to a wide range of matters. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, evidence and the specifics of each matter. The Group has not recognized a provision for claims or contingencies as of |
| (b) | Rental expense amounted to |
| Year Ending August 31, | Rental | |||
| 2014 (Six months) | $ | 66,191 | ||
| 2015 | 94,156 | |||
| 2016 | - | |||
| 2017 | - | |||
| 2018 | - | |||
| Over five years | - | |||
| $ | 160,347 | |||
| Period Ended November 30, | Rental | |||
| 2014 (Nine months) | $ | 100,191 | ||
| 2015 | 94,206 | |||
| 2016 | - | |||
| 2017 | - | |||
| 2018 | - | |||
| Over five years | - | |||
| $ | 194,397 | |||
| (c) | Deferred revenue amounted to |
| Year Ending August 31, | Revenue | |||
| 2014 (Six months) | $ | 72,480 | ||
| 2015 | 144,959 | |||
| 2016 | 144,959 | |||
| 2017 | 144,959 | |||
| 2018 | - | |||
| Over five years | - | |||
| $ | 507,357 | |||
| Period Ended November 30, | Revenue | |||
| 2014 (Nine months) | $ | 108,836 | ||
| 2015 | 145,114 | |||
| 2016 | 145,114 | |||
| 2017 | 145,115 | |||
| 2018 | - | |||
| Over five years | - | |||
| $ | 544,179 | |||
Economic and political risks
| (d) | The major operations of the Group are conducted in Hong Kong, the PRC. Accordingly, the political, economic, and legal environments in Hong Kong, the PRC, as well as the general state of Hong |
Among other risks, the Group'sGroup’s operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.
F-24
The following should be read in conjunction with the consolidated financial statements of the Company included elsewhere herein. All amounts are in U.S. Dollars unless other noted.
Forward-Looking Statements
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Company Overview
Unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to the combined business of ADGS Advisory, Inc., formerly known as Life Nutrition Products, Inc., a Delaware corporation, and its direct and indirect wholly-owned subsidiaries, Almonds Kisses Limited (BVI), a British Virgin Islands company, ADGS Advisory Limited, a Hong Kong corporation, Vantage Advisory Limited, a Hong Kong corporation, Motion Tech Development Limited, a British Virgin Islands company, and TH Strategic Management Limited, a Hong Kong corporation, as well as ADGS Tax Advisory Limited, a Hong Kong corporation which is an 80% owned subsidiary, and Dynamic Golden Limited, a Hong Kong corporation which until November 19, 2013 was 30% owned by ADGS Tax Advisory Limited and has since been 30% owned by Almonds Kisses Limited (BVI). Pursuant to a Certificate of Amendment to the its Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, the Company changed its corporate name from “Life Nutrition Products, Inc.” to “ADGS Advisory, Inc.”.
We are primarily engaged in providing accounting, taxation, company secretarial, general corporate and consultancy services in Hong Kong.
On April 12, 2013, we acquired 100% of the issued and outstanding capital stock of Almonds Kisses Limited (BVI) (“Almonds Kisses BVI”) in exchange for 20,155,000 shares of our common stock, representing in the aggregate approximately 80.1% of our issued and outstanding shares of common stock.
Almonds Kisses BVI was incorporated on March 1, 2011 as a limited liability company in the British Virgin Islands. ADGS Advisory Limited (“ADGS Hong Kong”) is a Hong Kong corporation which was incorporated on April 28, 2011 and had been wholly owned by the same group of shareholders until being acquired by Almonds Kisses BVI pursuant to a reorganization completed in 2012 to prepare for the Transaction. Vantage Advisory Limited is a Hong Kong corporation which was incorporated on March 6, 2008 which has been wholly owned by Almonds Kisses BVI since January 2013. Motion Tech is a British Virgin Islands company which was incorporated on October 7, 2007 and has been wholly owned by Almonds Kisses BVI since August 2013. Motion Tech is a property holding company which owns a residential property. TH Strategic Management Limited is a Hong Kong corporation which was incorporated on March 16, 2010 which has also been wholly owned by Almonds Kisses BVI since October 2013. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company. Dynamic Golden Limited which is also a Hong Kong incorporated company, which was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI, owns an investment in residential real property located in Tuen Mun,TuenMun, New Territories, Hong Kong.
3
The chart below presents our corporate structure as of the date of this report:
ADGS Advisory, Inc.
(formerly Life Nutrition Products, Inc.),
a Delaware corporation
ê 100% | ||||
Almonds Kisses Limited (BVI), a British Virgin Islands company | ||||
| ê100% | ê100% | ê100% | ê100% | ê30% |
| ADGS Advisory Limited | Vantage Advisory Limited, | TH Strategic ManagementLimited, | Motion Tech Development | Dynamic Golden Limited, |
| a Hong Kong corporation | a Hong Kong corporation | Limited, a British Virgin Islands company | ||
| | ||||
ê 80% | ||||
ADGS Tax Advisory Limited a Hong Kong corporation | ||||
Critical Accounting Policies
While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.
Basis of presentation
These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these interim consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended August 31, 2013, as filed in Form 10-K with the Securities and Exchange Commission on December 24, 2013.
The unaudited condensed consolidated financial statements include all accounts of the Company and its subsidiaries as disclosed in note 1. All material inter-company balances and transactions have been eliminated.
As both the Company and its subsidiaries, ADGS and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to periods prior to the assets and liabilities are that of the Company’s operating subsidiaries.
The accompanying consolidated financial statements are presented on a going concern basis. Although the Company hashad a working capital surplus of $255,542deficit of$233,445 at February 28, 2014, managementNovember 30, 2013. Management plans to continue its efforts to raise funds through debt or equity in the near future and increase its profitability to sustain itsour operations.
Revenue recognition
The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.
(i) Revenue generates from providing accounting, taxation, company secretarial and consultancy services is recognized when persuasive evidence of an arrangement exists, the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. The Group generates its revenues from providing professional services under fixed-fee billing arrangements.
4
In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay a fixed-fee in monthly installments over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.
(ii) Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured.
(iii) Rental income
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
(iv) Management fee income
The Company recognizes the management fee income when service is provided. Services include providing administration support service or accounting service to companies.
Purchased intangible assets and goodwill
The Company assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
- significant underperformance relative to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy for our overall business;
- identification of other impaired assets within a reporting unit;
- disposition of a significant portion of an operating segment;
- significant negative industry or economic trends;
The intangible assets are amortized using the straight line method over a period of 10 years.
Income taxes
The Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.
The Company records uncertain tax positions when it is more likely than not that the tax positions will not be sustained upon examination by the respective tax authority.
The Company recognizes interest and penalty related to income tax matters as income tax expense. For the six months ended February 28, 2014As of November 30, 2013 and August 31, 2013, there was no penalty or interest recognized as income tax expenses.
Economic and political risks
The major operations of the Company are conducted in Hong Kong, the PRC. Accordingly, the political, economic, and legal environments in Hong Kong, the PRC, as well as the general state of Hong Kong’s economy may influence the business, financial condition, and results of operations of the Company.
Among other risks, the Company'sCompany’s operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.
5
Recently issued accounting standards not yet adopted
The Company has reviewed all recently issued, but not effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will cause a material impact on its financial condition or the result of its operation.
Trends and Uncertainties
Insofar that our revenues are mainly derived from providing professional services to our clients under fixed-fee billing arrangements, the number of clients we have at any given time and the fees billed are the Company’s key uncertainties. The recent growth in revenues was primarily due to the acquisition of customer lists and client bases in 2011 and, therefore, we cannot be certain that this growth represents a trend which will continue although we have recently made acquisitions and we plan to make additional acquisitions in the upcoming years and we are regularly exploring such opportunities which may benefit our business and increase our revenues. In the future, we expect that we will seek to purchase other customer lists and client bases as part of our overall growth strategy, although there can be no assurance that we will be able to do any of the foregoing on terms which will be acceptable to us.
Other key uncertainties include our high leverage and highly variable interest expense. To date, we have significantly relied upon debt financings to fund our operations. At February 28, 2014November 30, 2013 (unaudited) and August 31, 2013 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,295,133$2,256,142 and $2,286,785, respectively. We also had bank overdrafts of $777,837$818,479 as of February 28, 2014November 30, 2013 compared with $744,077 as of August 31, 2013. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the sixthree months ended February 28, 2014November 30, 2013 was $52,895$14,663 and for the sixthree months ended February 28, 2013November 30, 2012 was $61,879.$29,260. Such loans are primarily term loans with maturity dates ranging from February 2014November 2013 to October 2037. Approximately $0.5 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2013, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. See “Risk Factors” elsewhere in this report for further discussion of these uncertainties and others.
In addition to the foregoing, as of February 28, 2014,November 30, 2013, advances to a related partyshareholder total $31,050.$208,921. The advances to the related partyshareholder represent unsecured, non-interesting bearing loans without fixed repayment terms. Although most of such advances have been repaid to the Company, such advances may have detrimentally affected our ability to do business insofar that such advances represented a major portion of the Company’s available cash. These advances were provided as a special accommodation to such related partyshareholder whose personal properties were provided as collateral for bank loans obtained by the Company. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to May 31,February28, 2014. The foregoing represents another key uncertainty since no assurance can be made that such advances will be repaid on or before May 31,February 28, 2014 or at all. In addition, although such advances are no longer being made to such shareholder, such advances have not generated income to the Company and may have detrimentally affected our ability to grow the business for the benefit of all of the shareholders.
Principal Components of Our Income Statement
Revenue
Our revenue is derived from providing professional services to our clients under fixed-fee billing arrangements. The most significant factors that affect our revenue are number of clients and our fees billed. In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a pre-determined set of professional services. Generally, our client agrees to pay a fixed-fee every month over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.
Operating expenses
Our operating expenses consist of direct cost of revenue, general and administrative expenses.
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Direct cost of revenue
Our direct cost of revenue primarily consists of commission paid, consultant fees, legal and professional fees, management fees, salaries, secretarial fees and sub-contractor fees.
General and administrative expenses
Our general and administrative expenses include advertising and exhibitions, computer fee, depreciation of property and equipment, motor vehicles, rent, rates and building management fee and other miscellaneous expenses related to our administrative activities.
Our operating expenses are positively correlated to our revenue, with the anticipated expansion of our Company, we anticipate the absolute dollars of the operating expenses will increase accordingly.
Other comprehensive income
Other comprehensive income reflects foreign currency translation adjustment according to our accounting policies.
For the Three Months Ended February 28, 2014 and February 28,November, 2013 and For the Six Months Ended February 28, 2014 and February 28, 20132012 (unaudited)
The following table presents the consolidated statements of operations of the Company for the three months ended February 28, 2014November, 2013 as compared to the results of operations for the three months ended February 28, 2013 and for the six months ended February 28, 2014 as compared to the results of operations for the six months ended February 28, 2013.
For the Three Months Ended February 28, | For the Six Months Ended February 28, | |||||||||||||||
2014 (unaudited) | 2013 (unaudited) | 2014 (unaudited) | 2013 (unaudited) | |||||||||||||
| (A) | (A) | |||||||||||||||
| Revenue | $ | 1,441,268 | $ | 1,296,035 | $ | 2,601,278 | $ | 1,905,634 | ||||||||
| Less: Operating expenses | ||||||||||||||||
| Direct cost of revenue | (586,401 | ) | (603,608 | ) | (1,131,827 | ) | (967,039 | ) | ||||||||
| General and administrative expenses | (388,920 | ) | (275,946 | ) | (601,734 | ) | (486,355 | ) | ||||||||
| Operating profit | 465,947 | 416,481 | 867,717 | 452,240 | ||||||||||||
| Other income | 327 | - | 1,869 | - | ||||||||||||
| Other expenses | (26,913 | ) | (33,348 | ) | (55,197 | ) | (62,775 | ) | ||||||||
| Net profit | 439,361 | 383,133 | 814,389 | 389,465 | ||||||||||||
| Income tax expenses | (71,631 | ) | (42,988 | ) | (84,980 | ) | (42,988 | ) | ||||||||
| Other comprehensive income/(loss) | (4,652 | ) | (67 | ) | 1,270 | (115 | ) | |||||||||
| Total comprehensive income | 363,078 | 340,078 | 730,679 | 346,362 | ||||||||||||
| Comprehensive loss attributable to non-controlling interests | 5,160 | 5,674 | 10,934 | 11,345 | ||||||||||||
| Comprehensive income attributable to ADGS Advisory, Inc. | $ | 368,238 | $ | 345,752 | $ | 741,613 | $ | 357,707 | ||||||||
For the Three Months Ended November | ||||||||
| 2013 | 2012 | |||||||
| (unaudited) | (unaudited) | |||||||
| (A) | ||||||||
| Revenue | $ | 1,126,764 | $ | 609,599 | ||||
| Less: Operating expenses | ||||||||
| Direct cost of revenue | (543,959 | ) | (363,431 | ) | ||||
| General and administrative expenses | (214,281 | ) | (210,409 | ) | ||||
| Operating profit | 368,524 | 35,759 | ||||||
| Other income | 34,788 | - | ||||||
| Other expenses | (28,284 | ) | (29,427 | ) | ||||
| Net profit | 375,028 | 6,332 | ||||||
| Income tax expenses | (13,349 | ) | - | |||||
| Other comprehensive income/(loss) | 5,922 | (51 | ) | |||||
| Total comprehensive income | 367,601 | 6,281 | ||||||
| Comprehensive loss attributable to non-controlling interests | 5,774 | 5,671 | ||||||
| Comprehensive income attributable to ADGS Advisory, Inc. | $ | 373,375 | $ | 11,952 | ||||
| (A) | Represents the consolidated statement of comprehensive income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) |
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Revenue
Our business for the sixthree months ended February 28, 2014November, 2013 expanded rapidly. We recorded revenue of $2.6$1.1 million for the sixthree months ended February 28, 2014,November, 2013, representing an increase of $0.7$0.5 million as compared to the results of $1.9$0.6 million for the same period ended February 28, 2013.November, 2012. The increase was primarily due to the increase of revenue stream in corporate restructuring, insolvency services and multi-disciplinary advisory services and a steadysteadily growth in accounting and corporate services.
General and administrative expenses
For the Three Months Ended February 28, | % | For the Six Months Ended February 28, | % | |||||||||||||||||||||
| 2014 | 2013 | change | 2014 | 2013 | change | |||||||||||||||||||
| Revenue | $ | 1,441,268 | $ | 1,296,035 | +11 | % | $ | 2,601,278 | $ | 1,905,634 | +37 | % | ||||||||||||
| Less: Operating expenses | ||||||||||||||||||||||||
| Direct cost of revenue | (586,401 | ) | (603,508 | ) | -3 | % | (1,131,827 | ) | (967,039 | ) | +17 | % | ||||||||||||
| General and administrative expenses | (388,920 | ) | (275,946 | ) | +41 | % | (601,734 | ) | (486,355 | ) | +24 | % | ||||||||||||
| Operating profit | $ | 465,947 | $ | 416,481 | +12 | % | $ | 867,717 | $ | 452,240 | +92 | % | ||||||||||||
| For the Three Months Ended November | % | |||||||||||
| 2013 | 2012 | change | ||||||||||
| Revenue | $ | 1,126,764 | $ | 609,599 | +85 | % | ||||||
| Less: Operating expenses | ||||||||||||
| Direct cost of revenue | (543,959 | ) | (363,431 | ) | +50 | % | ||||||
| General and administrativeexpenses | (214,281 | ) | (210,409 | ) | +2 | % | ||||||
| Operating profit | $ | 368,524 | $ | 35,759 | +931 | % | ||||||
The significant increase in general and administrative expenses is mainly caused by the increase of revenue stream in our services which led to more general and administrative expenses incurred.
Other expense
Other expense represents the interest expense for the bank loans bank overdrafts, capital leaseof $28,284 and others of $26,913$29,427 for the three months ended February 28, 2014 and $55,197 for the six months ended February 28, 2014 and $33,348 for the three months ended February 28,November, 2013 and $62,775 for the six months ended February 28, 2013.
Other comprehensive income/(loss)
Other comprehensive income/(loss) represents the foreign currency translation adjustment of $4,652$5,922 and $51 loss for the three months ended February 28, 2014 and $1,270 for the six months ended February 28, 2014 and $67 loss for the three months ended February 28,November, 2013 and $115 loss for the six months ended February 28, 2013.
Liquidity and Capital Resources
As of February 28, 2014,November 30, 2013, we had cash on hand of $1,112,662,$471,625, which represented an increase of $948,348$307,311 from $164,314 as of August 31, 2013, total current assets of $1,923,167,$1,778,918, and total current liabilities of $1,667,625.$2,012,363. Working capital at February 28, 2014 was $255,542in deficit of $233,445 and the ratio of current assets to current liabilities was 1.150.9 to 1 as of February 28, 2014.
As of February 28, 2014November 30, 2013 we had long term debt of $3,419,134,$3,380,843, which represented an decrease of $34,478$72,769 from $3,453,612 as of August 31, 2013; total assets of $5,738,590$5,681,959 as of February 28, 2014November 30, 2013 representing an increase of $972,713$916,082 from $4,765,877 as of August 31, 2013. The ratio of long term debts to total assets was 0.6 to 1 as of February 28, 2014.
These conditions raise doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our management plans to continue its efforts to raise funds through debt or equity, improve its profitability in the near future to sustain its operations.
8
The following is a summary of cash provided by or used in each of the indicated type of activities during the sixthree months ended February 28, 2014November, 2013 and February 28, 2013,2012, respectively:
For the Six Months Ended February 28, | ||||||||
| Cash provided by/(used in): | 2014 (unaudited) | 2013 (unaudited) | ||||||
| Operating activities | $ | 983,040 | $ | 453,694 | ||||
| Investing activities | (609,775 | ) | (133,366 | ) | ||||
| Financing activities | 757,490 | (104,018 | ) | |||||
| Effect of change of exchange rates | (407 | ) | 5 | |||||
| Cash, beginning of period | 164,314 | 129,001 | ||||||
| Cash, end of period | $ | 1,112,662 | $ | 345,316 | ||||
| For the Three Months Ended November | ||||||||
2013 (unaudited) | 2012 (unaudited) | |||||||
| Cash provided by/(used in): | ||||||||
| Operating activities | $ | 229,511 | $ | 129,637 | ||||
| Investing activities | (169,602 | ) | (8,118 | ) | ||||
| Financing activities | 247,220 | (78,668 | ) | |||||
| Effect of change of exchange rates | 182 | (33 | ) | |||||
| Cash, beginning of period | 164,314 | 129,001 | ||||||
| Cash, end of period | $ | 471,625 | $ | 171,819 | ||||
Net cash provided by operating activities was $983,040$229,511 for the sixthree months ended February 28, 2014,November 2013, as compared to net cash provided by operating activities of $453,694$129,637 for same period ended February 28, 2013.November 2012. The increase was mainly due to a net profit of $740,343, plus other receivables of $93,945, prepaid expenses of $64,051 and income tax payable of $110,440,$361,679, offset by accounts receivable of $(49,038)$(61,483), utility and other depositsreceivables of $(32,315)$(57,913), accrued liabilities of $(20,677), and$(35,081) accrued expenses for the Company and deferred revenue of $(72,534)$(36,276) due to the recognition of consultancy services provided to a third party with a fixed fee and term of four years.
Net cash used in investing activities was $(609,775) $(169,602)for the sixthree months ended February 28, 2014,November 2013, as compared to net cash used in investing activities of $(133,366)$8,118 for the sixthree months ended February 28, 2013.November 2012. The increase was mainly due to the partial payments on the acquisition of an intangible asset which was a client base from an independent unrelated third party and acquisition of subsidiary, TH Strategic Management Limited,which amounted to $475,605$38,705 and $112,826, respectively paid during the sixthree months period ended February 28, 2014.
Net cash provided by financing activities was $757,490$247,220 for the sixthree months ended February 28, 2014,November 2013, as compared to net cash used in by financing activities of $104,018$78,668 for the sixthree months ended February 28, 2013.November 2012. The increase was primarily caused by repayment to the Company of advances made and expenses paid on behalf of a related party advances (shareholder) of $387,159, receipt$209,601 and bank overdrafts of $154,988 for future share issuances,$74,398, and increase inrepayment of bank loans and bank overdraft of $86,132 and $34,582, respectively.$(30,641). The advances to shareholder represented unsecured, non-interesting bearing loans without fixed repayment terms. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to May 31,February28, 2014.
The Company had bank loans with outstanding principal of $2.3 million as of February 28, 2014.November 30, 2013. Summary of total bank loans is as follows:
Nature of loans | Terms of loans | Outstanding loan amount | Current annualized interest rate | Collateral | |||||
| Term loan | Ranging from 1 year to 25 years | $ | 2,295,133 | Ranging from annual rate from 0.38% to 6.98% | Property and personal guarantee from related party and third party | ||||
| $ | 2,295,133 | ||||||||
| Nature of loans | Terms of loans | Outstanding loan amount | Current annualized interest rate | Collateral | ||||||
| Term loan | Ranging from 1 year to 25 years | $ | 2,256,142 | Ranging from annual rate from 0.38% to 6.98% | Property and personal guarantee from related party and third party | |||||
| $ | 2,256,142 | |||||||||
The valuations for the above collaterals on August 15, 2013 were approximately $3.7m while the total outstanding loan amount was approximately $2.3m.
9
The Company had assets held under capital leases, which represent leases of motor vehicle. The cost of motor vehicle under capital lease was $105,646$112,913 at February 28, 2014.November 30, 2013. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of February 28, 2014November 30, 2013 are as follows:
| Amount | ||||
| Year ending August 31, | ||||
| 2014 (Six months) | $ | 13,658 | ||
| 2015 | 27,316 | |||
| 2016 | 27,316 | |||
| 2017 | 27,316 | |||
| 2018 | 10,745 | |||
| Thereafter | - | |||
| Total minimum lease payment | $ | 106,351 | ||
| Less: Imputed interest | (6,136 | ) | ||
| Present value of net minimum lease payments | $ | 100,215 | ||
| Less: Current maturities of capital leases obligations | (12,004 | ) | ||
| Long-term capital leases obligations | $ | 88,211 | ||
| Amount | ||||
| Year ending August 31, | ||||
| 2014 (Nine months) | $ | 22,488 | ||
| 2015 | 27,345 | |||
| 2016 | 27,345 | |||
| 2017 | 27,345 | |||
| 2018 | 10,752 | |||
| Thereafter | - | |||
| Total minimum lease payment | $ | 115,275 | ||
| Less: Imputed interest | (9,041 | ) | ||
| Present value of net minimum lease payments | $ | 106,234 | ||
| Less: Current maturities of capital leases obligations | (23,775 | ) | ||
| Long-term capital leases obligations | $ | 82,459 | ||
Material capital expenditure commitments
We anticipate that we will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. Currently, the Company has not entered into any agreements for any potential acquisitions. As a result, there are no material capital expenditure commitments as of February 28, 2014.
Contractual Obligations
The following table sets forth information regarding the Company'sCompany’s contractual payment obligations excluding the bank overdrafts of $0.8 million as of February 28, 2014.November 30, 2013.
| Payment due by period | ||||||||||||||||||||
| Contractual obligations | Total | < 1 year | 1 - 3 years | 3 - 5 years | > 5 years | |||||||||||||||
| Borrowing: | ||||||||||||||||||||
| - Capital lease | $ | 115,275 | $ | 22,488 | $ | 54,690 | $ | 38,097 | $ | - | ||||||||||
| - Bank loan | 2,256,142 | 76,905 | 232,556 | 169,745 | 1,776,936 | |||||||||||||||
| - Loan from a related party | 750,725 | - | - | 750,725 | - | |||||||||||||||
| Operating lease obligation: | ||||||||||||||||||||
| - Office rental | 194,397 | 100,191 | 94,206 | - | - | |||||||||||||||
| $ | 3,316,539 | $ | 199,584 | $ | 381,452 | $ | 958,567 | $ | 1,776,936 | |||||||||||
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| Payment due by period | ||||||||||||||||||||
| Contractual obligations | Total | < 1 year | 1 - 3 years | 3 - 5 years | > 5 years | |||||||||||||||
| Borrowing: | ||||||||||||||||||||
| - Capital lease | $ | 106,351 | $ | 13,658 | $ | 54,632 | $ | 38,0561 | $ | - | ||||||||||
| - Bank loan | 2,295,133 | 76,531 | 268,962 | 159,963 | 1,789,677 | |||||||||||||||
| - Loan from a related party | 749,923 | - | - | 749,923 | - | |||||||||||||||
| Operating lease obligation: | ||||||||||||||||||||
| - Office rental | 160,347 | 66,191 | 94,156 | - | - | |||||||||||||||
| $ | 3,311,750 | $ | 156,380 | $ | 417,750 | $ | 947,943 | $ | 1,789,677 | |||||||||||
Off-Balance Sheet Arrangement
There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.
We have not entered into any financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us.
We may be exposed to interest rate risk in relation to the bank loans we maintain. The interest rate risk is managed by the Directors of the Company on an ongoing basis with the primary objective of limiting the extent to which interest expense could be affected by adverse movement in interest rates. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s post-tax profit for the sixthree months ended February 28, 2014November 30, 2013 would increase/decrease by $3,843 as compared with the combined post-tax profit for the six months ended February 28, 2013 while the Company’s post-tax profit for the three months ended February 28, 2014 would increase/decrease by $230US$3,614 as compared with the combined post-tax profit for the three months ended February 28, 2013.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, as of February 28, 2014,November 30, 2013, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
11
The Company is not currently a party to any pending material legal proceeding nor is it aware of any proceeding contemplated by any individual, company, entity or governmental authority involving the Company.
None.
None.
Not applicable.
Item 5. 5 . Other Information.
None.
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| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) | |
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) | |
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) | |
| 101* | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended |
| * | In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. |
13
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.
| ADGS ADVISORY, INC. | |||
| (Registrant) | |||
Dated: May 3, 2021 | By: | /s/ | Xuye Wu |
| Xuye Wu | |||
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