UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q /A
(Amendment No. 1)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31,November 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______from_______to _______

Commission file number 001-34274

ADGS ADVISORY, INC.INC.
(Exact name of Registrant as Specified in its Charter)
 
Delaware 42-1743717
(State or other jurisdictionof incorporation or Identification No.) (I.R.S. Employer
of incorporation ororganization) Identification No.)
 
Units 2611-13A, 26/F
113 Argyle Street, Mongkok
Kowloon, Hong Kong, SAR
 N/A
(Address of principal executive offices) (Zip Code)

(852) 2374-0002
(Registrant’s Telephone Number, Including Area Code)

Life Nutrition Products, Inc., former fiscal year: December 31Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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.Yes ox No xo

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated fileroAccelerated filero
Non-accelerated fileroSmaller reporting companyx

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

State 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; 25,000,000 outstanding as of JulyJanuary 22, 2013.2014.
 



EXPLANATORY NOTE

We are filing this Amendment No. 1 of Form 10-Q/A (the “Amendment”) to our quarterly report on Form 10-Q for the period ended May 31, 2013 (the “Original Report”) to address comments from the staff of the Securities and Exchange Commission.  Except as otherwise reflected below, this Amendment speaks as of the filing date of the Original Report and does not reflect events that may have occurred subsequent to the filing of the Original Report.
 
 

 
ADGS ADVISORY, INC.
(formerly Life Nutrition Products, Inc.)

TABLE OF CONTENTS

   Pages 
PART I - FINANCIAL INFORMATION   
     
Item 1.Financial Statements.  3 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.  264 
Item 3.Quantitative and Qualitative Disclosures About Market Risk.  3712 
Item 4.Controls and Procedures.  3712 
      
PART II - OTHER INFORMATION    
      
Item 1.Legal Proceedings.  3813 
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.  3813 
Item 3.Default upon Senior Securities.  3813 
Item 4.Mine Safety Disclosures.  3813 
Item 5.Other Information.  3813 
Item 6.Exhibits.  3914 
      
SIGNATURES  4015 

 
2

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ADGS ADVISORY, INC.
(formerlyLife Nutrition Products, Inc.)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MAY 31,NOVEMBER 30, 2013 (UNAUDITED)


 
3

 
ADGS ADVISORY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2013 (UNAUDITED)
 
ADGS ADVISORY, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS Pages 
    
Condensed Consolidated Balance Sheets at May 31,as of November 30, 2013 (Unaudited) and August 31, 20122013  5F-1 
     
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended May 31,November 30, 2013 and November 30, 2012 (Unaudited)  6F-2 
     
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended May 31,November 30, 2013 and November 30, 2012 (Unaudited)  7F-3 
     
Condensed Consolidated StatementStatements of Changes in Stockholders’ DeficitEquity for Ninethe Three Months Ended May 31,November 30, 2013 and 2012 (Unaudited)  8F-4 
     
Condensed Consolidated Statements of Cash Flows for Ninethe Three Months Ended May 31,November 30, 2013 and November 30, 2012 (Unaudited)  9F-5 
     
Notes to the Condensed Consolidated Financial Statements (Unaudited)  10F-6 - F-29 
 
 
4F-1

 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
  May 31, 2013  August 31, 2012 
  (Unaudited)  (A) 
Assets      
   Current assets      
Cash $78,459  $129,001 
Restricted cash  128,546   - 
Accounts receivable  373,167   - 
Prepaid expenses  63,692   18,518 
Related party receivables  1,853,265   241,036 
Total current assets  2,497,129   388,555 
         
Non-current assets        
Utility and other deposits  35,587   36,299 
Property and equipment, net  198,935   93,350 
Intangible assets  839,843   974,359 
Equity-method investment  371,558   379,693 
Deposit  574,364   - 
Total non-current assets  2,020,287   1,483,701 
         
Total assets $ 4,517,416  $ 1,872,256 
         
Liabilities and stockholders' deficit        
Current liabilities        
Bank overdraft $620,761  $- 
Bank loans - current portion
  824,236   919,392 
Assets held under capital lease   5,747    9,615 
Accrued liabilities  156,346   25,937 
Income tax payable  82,010   - 
Temporary receipts  186,380   - 
Total current liabilities  1,875,480   954,944 
         
Non-current liabilities        
Bank loans - net of current portion  2,786,210   1,605,593 
Assets held under capital lease, net of current portion  111,416   4,984 
Total non-current liabilities  2,897,626   1,610,577 
         
Total liabilities  4,773,106   2,565,521 
         
Commitments and contingencies        
Stockholders' deficit        
Common stock,        
    Common stock, 50,000,000 shares authorized with US$0.0001 par value;        
         25,000,000 and 25,000,000 shares issued,        
         25,000,000 and 25,000,000 shares outstanding as of        
         May 31, 2013 and August 31, 2012, respectively  2,500   2,500 
    Additional paid-in capital  (2,500)  (2,500)
    Accumulated deficit  (124,947)  (579,757)
    Accumulated other comprehensive (loss)/income  (183)  31 
Total Almonds Kisses stockholders' deficit  (125,130)  (579,726)
         
Non-controlling interest  (130,560)  (113,539)
         
Total liabilities and stockholders' deficit $4,517,416  $ 1,872,256 
 
(A)  Represents the consolidated Balance Sheets of Almond Kisses Limited and subsidiaries (the "Accounting Acquirer") (See note 1)
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN US DOLLARS)
  
November 30,
 2013
  
August 31,
 2013
 
  (Unaudited)    
Assets
       
Current assets      
Cash $471,625  $164,314 
Restricted cash  129,604   129,312 
Accounts receivable  715,945   564,773 
Other receivables  188,752   130,835 
Due from a related party  208,921   418,658 
Prepaid expenses  64,071   64,071 
Total current assets  1,778,918   1,471,963 
         
Non-current assets        
Property and equipment, net  2,080,942   2,088,690 
Equity-method investment  368,368   371,096 
Intangible assets  905,514   793,840 
Goodwill  475,605   - 
Utility and other deposits  72,612   40,288 
Total non-current assets  3,903,041   3,293,914 
         
Total assets $5,681,959  $4,765,877 
         
Liabilities and stockholders' equity
         
Current liabilities        
Bank overdraft $818,479  $744,077 
Assets held under capital lease  23,775   23,775 
Accrued liabilities and other payables  223,207   218,242 
Deferred revenue  145,114   145,114 
Income tax payable  191,176   152,357 
Consideration payable for acquisition of an intangible asset  116,092   - 
Consideration payable for acquisition of a subsidiary  386,972   - 
Bank loans - current portion  107,548   107,548 
Total current liabilities  2,012,363   1,391,113 
         
Non-current liabilities        
Assets held under capital lease, net of current portion  82,459   88,306 
Deferred revenue, net of current portion  399,065   435,343 
Bank loans - net of current portion  2,148,594   2,179,237 
Loan from a related party  750,725   750,726 
Total non-current liabilities  3,380,843   3,453,612 
         
Total liabilities  5,393,206   4,844,725 
         
Commitments and contingencies        
         
Stockholders' equity/(deficit)        
Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding  -   - 
Common stock,        
Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 25,000,000 shares issued and outstanding as of November 30, 2013 and 25,000,000 issued and outstanding as of August 31, 2013  2,500   2,500 
Additional paid in capital  (2,500)  (2,500)
Retained earning  435,321   67,868 
Accumulated other comprehensive loss  (4,442)  (10,364)
Total ADGS Advisory, Inc. stockholders' equity  430,879   57,504 
         
Non-controlling interests  (142,126)  (136,352)
         
Total liabilities and stockholders’ equity $5,681,959  $4,765,877 
 
See notes to condensed consolidated financial statements (Unaudited)(unaudited).
 
 
5F-2

 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN US DOLLARS)

  
For the Three Months Ended
November 30,
 
  2013  2012 
     (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)
Total operating expenses  (758,240)  (573,840)
         
Operating income  368,524   35,759 
         
Other income:        
Bank interest received  292   - 
Management fee income  33,246   - 
Other income  1,250   - 
         
Other expense:        
Interest expenses  (28,284)  (29,427)
         
Profit before income taxes  375,028   6,332 
         
Less: Income tax expense  (13,349)  - 
         
Net profit before allocation of non-controlling interest  361,679   6,332 
         
Net loss attributable to non-controlling interest  5,774   5,671 
         
Net income attributable to common stockholders $367,453  $12,003 
         
Earnings per share        
- Basic and diluted $0.01  $0.24 
         
Weighted average common shares outstanding        
- Basic and diluted  25,000,000   50,000 

ADGS ADVISORY, INC.(A)  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN US DOLLARS)Represents the consolidated statement of income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)
  For the Three Months Ended  For the Nine Months Ended 
  May 31,  May 31, 
  2013  2012  2013  2012 
     (A)     (A) 
Revenue $889,591  $510,758  $2,795,225  $938,578 
                 
Less: Operating expenses:                
       Direct cost of revenue  (546,615)  (372,400)  (1,513,654)  (659,468)
       General and administrative expenses  (178,974)  (105,674)  (665,329)  (382,905)
 Total operating expenses  (725,589)  (478,074)  (2,178,983)  (1,042,373)
                 
Operating income/(loss)  164,002   32,684   616,242   (103,795)
                 
 Other income:                
    Bank interest received  320   -   320   - 
    Other income  2,259   146   2,259   146 
                 
 Other expense:                
     Interest expenses  (36,247)  (36,898)  (99,022)  (41,724)
                 
Income/(loss) before income taxes  130,334   (4,068)  519,799   (145,373)
                 
Less: Income tax expense  (39,022)  -   (82,010)  - 
                 
Net income/(loss) before allocation of non-controlling interest $91,312  $(4,068) $437,789  $(145,373)
                 
Net loss attributable to non-controlling interest  5,676   7,554   17,021   16,587 
                 
Net income/(loss) attributable to common stockholders $96,988  $3,486  $454,810  $(128,786)
                 
Earnings/(loss) per share                
    - Basic and diluted $0.00  $0.00  $0.02  $(0.01)
                 
Weighted average common shares outstanding                
    - Basic and diluted  25,000,000   25,000,000   25,000,000   25,000,000 
(A)  Represents the consolidated Statement of Income of Almond Kisses Limited and subsidiaries (the "Accounting Acquirer") (See note 1)

See notes to condensed consolidated financial statements (Unaudited)(unaudited).
 
 
6F-3

 
 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN US DOLLARS)
  
For the Three Months Ended
November 30,
 
  2013  2012 
     (A) 
       
Net income $361,679  $6,332 
         
Other comprehensive income/(loss)        
Foreign currency translation adjustment  5,922   (51)
         
Comprehensive income  367,601   6,281 
         
Comprehensive loss attributable to non-controlling interest  5,774   5,671 
         
Comprehensive income attributable to ADGS Advisory, Inc. $373,375  $11,952 

  For the Three Months Ended May 31,  For the Nine Months Ended May 31, 
  2013  2012  2013  2012 
     (A)     (A) 
Net income/(loss) $91,312  $(4,068) $437,789  $(145,373)
                 
Other comprehensive expense                
    Foreign currency translation adjustment  (99)  -   (219)  - 
                 
Comprehensive income/(loss)  91,213   (4,068)  437,570   (145,373)
                 
Add: Comprehensive loss attributable to non-controlling interests  5,676   7,554   17,021   16,587 
                 
Comprehensive income/(loss) attributable to ADGS Advisory Inc. $96,889  $3,486  $454,591  $(128,786)
(A)  Represents the consolidated Statement of Income of Almond Kisses Limited and subsidiaries (the "Accounting Acquirer"
(A)  Represents the consolidated statement of comprehensive income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)

See notes to condensed consolidated financial statements (Unaudited)(unaudited).
 
 
7F-4

 
 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS' DEFICITEQUITY (UNAUDITED)
(IN US DOLLARS)
 
  
Common Stock, with
US$0.0001 Par Value
     Accumulated Other          
  Number of     Additional  Comprehensive  Accumulated  Non-controlling  Total 
  Shares  Amount  Paid-in capital  (loss)/income  Losses  Interest  Deficit 
                      
Balance as of August 31, 2012 (A)  25,000,000  $2,500  $(2,500) $31  $(579,757) $(113,539) $(693,265)
Net income  -   -   -   -   454,810   (17,021)  437,789 
Foreign translation loss  -   -   -   (214)  -   -   (214)
Balance as of May 31, 2013  25,000,000  $2,500  $(2,500) $(183) $(124,947) $(130,560) $(255,690)
(A)  Represents the consolidated Statement of change on stockholder’s equity of Almond Kisses Limited (the "Accounting Acquirer") (See note 1)
  
Preferred shares with
US$0.0001 Par Value
  
Common Stock, with
US$0.0001 Par Value
  
 Additional
paid-in
   Accumulated Other      Non-    
  Number of Shares  
 
Amount
  Number of Shares  Amount  
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)  -   -   -   -   -   -   367,453   (5,774)  361,679 
Foreign translation gain  -   -   -   -   -   5,922   -   -   5,922 
                                     
Balance as of November 30, 2013   -    -   25,000,000   2,500   (2,500) $(4,442) $435,321  $(142,126) $288,753 

See notes to condensed consolidated financial statements (Unaudited)(unaudited).
 
 
8F-5

 
 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN US DOLLARS)
 
  For the Nine Months Ended May 31, 
  2013  2012 
     (A) 
Cash flows from operating activities:      
Net income/(loss) $454,591  $(128,786)
Add: Net loss attributable to non-controlling interest  (17,021)  (16,587)
Net income/(loss) attributable to the stockholders  437,570   (145,373)
         
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
        
Depreciation of property and equipment  27,791   2,174 
Amortization of intangible assets  134,626   134,626 
Net loss in equity-method investment  8,137   8,137 
         
Changes in assets and liabilities:        
Account receivable  (373,137)  - 
Utility and other deposits  718   (2,767)
Prepaid expenses  (45,167)  - 
Accrued liabilities  130,395   17,249 
Temporary receipts  186,366   141 
Income tax payable  82,008   - 
Net cash provided by operating activities  589,307   14,187 
         
Cash flows from investing activities:        
Acquisition of property and equipment  (8,118)  (635)
Deposit  (574,429)  - 
Net cash used in investing activities  (582,547)  (635)
         
Cash flows from financing activities:        
Borrowings by shareholder
  (4,012,216)  (1,937,228)
Repayment of borrowings by shareholder  2,400,236   - 
Bank overdraft  620,761   - 
Restricted cash  (128,546)    
Repayment of bank loans  (138,232)  (13,176)
Proceeds from bank loans  1,223,187   2,081,062 
Repayment of capital lease  (22,696)  (11,105)
Net cash (used in)/provided by financing activities       (57,506)  119,553 
Net (decrease)/increase in cash  (50,746)  133,105 
Effect on change of exchange rates on cash  204   (4)
Cash as of Beginning of period  129,001   10,907 
Cash as of End of period $78,459  $144,008 
         
Supplemental disclosures of cash flow information:        
Capital lease additions $125,250  $28,036 
Cash paid during the period for:        
Bank loan interest paid $26,685  $36,672 
Capital lease interest $1,113  $226 
Income tax paid $-  $- 
  
For the Three Months Ended
November 30,
 
  2013  2012 
     (A) 
Cash flows from operating activities:      
Net profit/(loss) $367,453  $12,003 
Less: Net loss attributable to non-controlling interest  (5,774)  (5,671)
   361,679   6,332 
Adjustments to reconcile net profit/(loss) to net cash provided by operating activities:        
Depreciation of property and equipment  25,818   6,285 
Equity in loss of equity-method investment  2,728   2,712 
Amortization of intangible assets  49,013   44,875 
Changes in assets and liabilities:        
Utility and other deposits  (32,323)  1,283 
Accounts receivable  (61,483)  - 
Other receivables  (57,913)  - 
Prepaid expenses  -   (17,768)
Income tax payable  13,349   - 
Accrued liabilities  (35,081)  85,918 
Deferred revenue  (36,276)  - 
Net cash provided by operating activities  229,511   129,637 
         
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)  (8,118)
Net cash used in investing activities  (169,602)  (8,118)
         
Cash flows from financing activities:        
Advances made and expenses paid on behalf of a related party  -   (2,366,544)
Repayment of advances made and expenses paid on behalf of a related party  209,601   795,842 
Proceeds from bank loans and bank overdraft  -   1,535,411 
Repayment of bank loans  (30,641)  (41,017)
Net increase in restricted cash  (292)  - 
Net increase in bank overdraft  74,398   - 
Repayment of capital lease obligations  (5,846)  (2,360)
Net cash provided by / (used in) financing activities  247,220   (78,668)
Net increase in cash  307,129   42,851 
Effect on change of exchange rates on cash  182   (33)
Cash as of the beginning of the period  164,314   129,001 
Cash as of the end of period $471,625  $171,819 
Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Bank loan interest paid $14,663  $29,260 
Capital lease interest $990  $167 
 
(A) Represents the consolidated Statements of Cash Flows of Almond Kisses Limited and its subsidiaries (the "Accounting Acquirer")(See
(A)  Represents the consolidated statement of cash flows of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)
 
See notes to condensed consolidated financial statements (unaudited).
 
 
9F-6

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
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.”.

On December 7, 2012, the Company entered into a share exchange agreement (the “Original Exchange Agreement”) with ADGS Advisory Limited, a Hong Kong corporation (“ADGS”ADGS Hong Kong”) and ADGS Advisory (Holding) Limited, a British Virgin Islands corporation (“ADGS Holding”ADGS”). Pursuant to the Original Exchange Agreement, at the closing of the transaction contemplated thereunder (the “ADGS Transaction”), the Company agreed to acquire 100% 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.

On April 12, 2013, the ADGS Transaction closed whereby the Company acquired all of the issued and outstanding capital stock of Almonds Kisses BVI pursuant to the Exchange Agreement in exchange for an aggregate of 20,155,000 newly issued shares of the Company’s common stock which were issued to the eight former shareholders of Almonds Kisses BVI. As a result, on April 12, 2013, Almonds Kisses BVI became the Company’s wholly-owned subsidiary and the former shareholders of Almonds Kisses BVI became the Company’s controlling shareholders, and Almond Kisses BVI in turn owns all of the issued and outstanding capital stock of ADGS. Almond Kisses (BVI) also owns all of the issued and outstanding capital stock of Vantage Advisory Limited, a Hong Kong corporation. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company, and ADGS Tax owns a 30% interest in Dynamic Golden Limited which is also a Hong Kong incorporated company.company and through Almonds Kisses owns its 30% effective on November 19, 2013.

The Company also acquired a property holding company, Motion Tech Development Limited, incorporated in British Virgin Islands. The transfer of shares was completed in August 29, 2013 and it is now 100% owned by Almond Kisses.

In October 20, 2013, the Company further acquired a Hong Kong incorporated company, T H Strategic Management Limited for purchase consideration of approximately $516,000 (HK$4,000,000) and it is now 100% owned by Almonds Kisses. T H Strategic Management Limited is engaged in providing accounting, taxation, company secretarial and consultancy services.
F-7

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
1.  Description of business and organization (…/Cont’d)

ADGS Advisory, Inc. is a holding company and, through its subsidiaries and group company.  As a result of share exchange, it nowcompany, engages in providing accounting, taxation, company secretarial, consultancy services and consultancy services.service for slope inspection. The Company together with its consolidated subsidiaries and its equity-method investment, are collectively referred to as the “Group”. The Share Exchange was accounted for as a "reverse merger", since the former stockholders of Almond Kisses own a majority of the outstanding shares of the Company's capital stock immediately following the Share Exchange.
10


ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
1. Description of business and organization (…/Cont’d)

Reorganization
Almond Kisses was incorporated on March 1, 2011 as a limited liability company in British Virgin Island. ADGS Advisory Limited (“ADGS) and its subsidiary and equity-method investment, were limited companies incorporated in Hong Kong had been wholly owned by the same group of shareholders until being acquired by Almonds Kisses pursuant to a reorganization (“Reorganization”) to prepare for the listing of the Company’s shares on a stock exchange. ADGS Tax Advisory Limited (“ADGS Tax”) provided the same type of services prior to the establishment of ADGS. ADGS Tax became a dormant holding company after ADGS incorporated.
F-8

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
1.  Description of business and organization (…/Cont’d)

Details of the Company’s subsidiarysubsidiaries and equity-method investment which are included in these consolidated financial statements are as follows:
 
Subsidiary’s name 
Place and date of incorporation
 
Percentage of ownership by the Company
 Principal activities
       
Almond Kisses Limited
“Almond Kisses”
 
British Virgin Island
March 1, 2011
 100% Holding company
       
ADGS Advisory Limited “ADGS”“ADGS Hong Kong” 
Hong Kong, People's Republic of China (“PRC”)
April 28, 2011
 100% (though Almonds Kisses) Engage in providing accounting, taxation, company secretarial, and consultancy services.
       
ADGS Tax Advisory Limited
“ADGS Tax”
 
Hong Kong, PRC
March 17, 2003
 80% (through ADGS)ADGS Hong Kong) 
Holding company
       
Dynamic Golden Limited
“Dynamic”
 Hong Kong, PRC
April 16, 2004
 30% (through ADGS Tax)Tax, until November 19, 2013 and through Almonds Kisses thereafter) 
Property holding company
       
Vantage Advisory Limited “Vantage”
 
Hong Kong, PRC
March 6, 2008
 
100% (though Almonds Kisses)
 
Engage in providing accounting, taxation, company secretarial, and consultancy services.
Motion Tech Development Limited
“Motion Tech”
British Virgin Islands
October 3, 2007
100% (through Almonds Kisses effective on August 29, 2013)
Property holding company
T H Strategic Management Limited
“T H”
Hong Kong, PRC
March 16, 2010
100% (though Almonds Kisses effective on October 20, 2013)
Engage in providing accounting, taxation, company secretarial, and consultancy services.

The Company also operates branches in Shenzhen, PRC and Bangkok, Thailand, The branches are set up to attract potential clients to go to Hong Kong and establish companies. A full range of services could be provided to these clients.
 
 
11F-9

 

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
2.  Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensedThese interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and related notesdisclosures 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 of America (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they may not include all of the information and footnotes required by GAAP for completeStates. These unaudited consolidated financial statements.  All adjustments that are,statements should be read in the opinion of management, of a normal recurring nature and are necessary for a fair presentation ofconjunction with the consolidated financial statements have been included. The resultsand accompanying footnotes of operationthe Company for the three months and nine monthsyear ended MayAugust 31, 2013, are not necessarily indicative ofas filed in Form 10-K with the results that may be expected for the entire fiscal year or any other interim period.Securities and Exchange Commission on December 24, 2013.

The preparation of the condensed consolidated financial statements in accordance with US GAAP requires management of the Company to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables, realizable values for inventories. Actual results could differ from those estimates.

Theunaudited condensed consolidated financial statements include all accounts of the Company and its subsidiarysubsidiaries 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.

Going concern

The accompanying unaudited condensed consolidated financial statements are presented on a going concern basis. At May 31, 2013, theThe Company hadhas a working capital surplusdeficit of $1,196,008 and net liabilities of $255,695.  The Company generated a net profit of $96,988 during the three-month period ended May 31, 2013 (a net profit of $3,486 for the three-month period ended May 31, 2012); a net profit of $454,810 during the nine-month period ended May 31, 2013 (a net loss of $128,786 for the nine-month period ended May 31, 2012).  These conditions raise substantial 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 adjustments that might result from the outcome of this uncertainty.$233,445 at November 30, 2013. Management plans to continue its efforts to raise funds through debt or equity in the near future and improve its profitability to sustain its operations.

 
12F-10

 
.
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 subsidiarysubsidiaries within the Company maintain itstheir books and records in their respective functional currency, Hong Kong dollars (“HK$”), being the lawful currency in Hong Kong, respectively.Kong. Assets and liabilities of the subsidiarysubsidiaries 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:

 
May 31,
2013
 
August 31,
2012
 (Unaudited)  
    
Balance sheet items, except for equity accountsHK$7.7987=$1 HK$7.800=$1
    
 For the Nine Months Ended May 31,
 2013 2012
 (Unaudited)
Items in statements of income and cash flowsHK$7.7993=$1 HK$7.7994=$1
    
 For the Three Months Ended May 31,
 2013 2012
 (Unaudited)
Items in statements of income and cash flowsHK$7.7991=$1 HK$7.7997=$1
 
November 30,
2013
 
August 31,
2013
 (Unaudited)  
    
Balance sheet items, except for equity accountsHK$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 endedHK$7.7530=$1 HK$7.7554=$1

Revenue recognition

Revenue is recognized when persuasive evidence of an arrangement exists, the relatedThe Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, are providedconsultancy 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 of the revenue 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 GroupCompany 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 every monthin 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.
 
 
13F-11

 

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 costcosts 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 November 30, 2013 and August 31, 2012 or May 31, 2013.

Restricted cash

Restricted cash is the deposit pledgedrepresents cash in banks were restricted and deposited in certain banks as security for installment loans payable to the banks for additional banking facilities.banks.

Accounts receivable

Accounts receivable are recorded at the invoiced amount,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 historically 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-12


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 propertyOver the unexpired term of the lease
Leasehold improvement5 years
Furniture and fixtures5 years
Office equipment5 years
Motor vehicles5 years
14

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
2. Summary of significant accounting policies (…/Cont’d)

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 TAXTax not owned by Almonds Kisses.

F-13

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 and goodwill

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;

- 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-14

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' equity that are not included in the determination of net income, but rather are reported as a separate component of 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.
15

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
2. Summary of significant accounting policies (…/Cont’d)

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". 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 notmore-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.sustained upon examination by the respective tax authority.

The Group recognizes interest and penalty related to income tax matters as income tax expense. As of May 31,November 30, 2013 and 2012, there was no penalty or interest recognized as income tax expenses.
F-15


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 $3,290$13,818 and $2,174$9,159 for the three months period ended May 31, 2013 and 2012; $18,295 and $11,021 for the nine months period ended May 31,November 30, 2013 and 2012, respectively.

Temporary receipts

Temporary receipts are the balances realized by the Group in the position as appointed liquidator from the companies which are in the process of liquidation and are temporarily kept with the Group.
16

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
2. Summary of significant accounting policies (…/Cont’d)

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 liability 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 valuevalue. 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. None of which are held for trading purposes. 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.
 
 
17F-16


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 slope inspection. The Company evaluates performance based on net operating profit. Administrative functions are centralized however, where applicable, portions of the administrative function expenses are allocated between the operating segments. In the event any services are provided to one operating segment by the other, the transaction is valued according to the company’s transfer policy, which approximates market price. The administrative expenses are captured discretely within each segment. The Company’s property and equipment, and accounts receivable are captured and reported discretely within each operating segment.

The following tables set forth the Company'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-17

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
3.  ACQUISITION OF BUSINESS SEGMENTS (…../Cont’d)

In January 2013, the Group acquired 100% shareholding of Vantage Advisory Limited, a Hong Kong incorporated limited company, for purchase consideration of about US$641(HK$5,000). Vantage Advisory Limited is one of the nine firms in Hong Kong which has appointed as Joint and Several Provisional Liquidators under Panel “T” by Official Receiver’s Officer under the Government of Hong Kong Special Administrative Region. The value of Vantage Advisory Limited as at January 4, 2013 was $641 and was allocated as follows:
A)  Business segment reporting - by product (…../Cont’d)

Total asset acquired $2,493 
Total liabilities assumed  (1,852)
Net assets acquired $641 
  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 

The directors assessed that the differences between fair values and carrying amounts of assets and liabilities are insignificant. No goodwill arose in the acquisition of Vantage Advisory Limited.
  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 

The business acquired did not make any significant contribution to the revenue or profit of the Group for the period between the acquisition date/ beginning period date and the balance sheet date.
F-18

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
4.ACQUISITION OF SUBSIDIARY
Almonds Kisses Limited (“Almonds Kisses”), a wholly owned subsidiary of ADGS Advisory Inc. (the "Company") entered into a purchase and sale agreement (the "Purchase Agreement") dated October 20, 2013 which was previously filed as Exhibit 10.1 to the Company'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") 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 paid the first installment on October 18, 2013, and the remaining installments 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-19

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 May 31,November 30, 2013 and August 31, 20122013 consists of the following:

  May 31, 2013  August 31, 2012 
  (Unaudited)    
       
Bank balances and cash $78,459  $129,001 
  
November 30,
2013
  
August 31,
2013
 
  (Unaudited)    
       
Bank balances and cash $471,625  $164,314 

All cash was keptmaintained in Hong Kong, PRC. In Hong Kong, there is currentlyare no rulerules or regulations mandating onan obligatory insurance of bank account.accounts. Management believes these financial institutions are of high credit quality.
Banking facilities including bank overdrafts and term loans have been obtained from banks.  Bank overdraft balance, and balance of cash and cash equivalents are separately shown in the balance sheet in gross amount.  Bank overdrafts are repayable on demand which also form an integral part of cash management, and are shown as current liabilities.  Bank overdrafts carry interest at market rate range from the local Hong Kong prime rate plus 0.75% to 1 % per annum, the effective rate would be about 6% to 6.25% per annum in 2012 and 2013.

5.6.  RELATED PARTY RECEIVABLESRESTRICTED CASH
Related party receivables are borrowings from the Company by one of the principal shareholders which are unsecured, non-interest bearing and without fixed repayment terms.   Although there is no binding obligation on the part of the shareholder to repay such loans , such shareholder has informally agreed to repay such amounts on or before November 1, 2013.

The activityAs of November 30, 2013 and August 31, 2013 the Group's cash amounting to $129,604 and $129,312 respectively, were restricted and deposited in a bank as security for such related party receivables duringinstallment loans payable to the period is as follows:

  Amount 
Nine months ended May 31, 2013:   
  Beginning balance due $241,036 
  Borrowings by shareholder during the period  4,012,216 
  Repaid by shareholder during the period  (2,400,236)
  Exchange rate adjustment  249 
  Balance due at May 31, 2013 $1,853,265 
bank.
 
 
18F-20

 
 
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 November 30, 2013 and August 31, 2013 is as follows:

  
November 30,
2013
 
  
(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-21

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
6.9.  PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

 May 31, 2013  August 31, 2012  
November 30,
2013
  
August 31,
2013
 
 (Unaudited)     (Unaudited)    
            
Investment property $1,909,061  $1,909,062 
Leasehold improvement $85,303  $78,251   103,896   85,345 
Furniture and fixtures  5,626   4,560   5,632   5,632 
Office equipment  6,730   6,730   6,730   6,730 
Motor vehicles  153,292   28,034 
Motor vehicle  145,406   145,407 
  250,951   117,575   2,170,725   2,152,176 
Less: Accumulated depreciation  (52,016)  (24,225)  (89,783)  (63,486)
 $198,935  $93,350  $2,080,942  $2,088,690 

Depreciation expense for the three months ended May 31,November 30, 2013 and 2012 amounted to $12,548$25,818 and $1,665; for the nine months ended May 31, 2013 and 2012, depreciation expense amounted to $27,791 and $2,174$6,285 respectively.

Included in motor vehicle of the caption "motor vehicles" inGroup, the table above are vehiclesnet carrying amount of $112,913 (2012: $21,025) is under capital leaseslease with net carrying amounts of $134,544 at May 31, 2013 and $22,427 at August 31, 2012. Depreciationthe related depreciation charge these vehicles were $7,664 and $1,402 and 2012; $13,141 and $1,402 for the three-three months ended and nine-months ended May 31,November 30, 2013 of $7,270 and 2012 respectively.is $1,402.

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-22

 
7.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 $153,292$112,913 ($112,913 net of accumulated depreciation) at May 31,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 May 31,November 30, 2013, are as follows:

  Amount 
Year ending August 31,   
2013 (Three months) $6,796 
2014  27,183 
2015 27,183 
2016 
27,183
 
2017 
27,183
 
Thereafter  10,691 
Total minimum lease payment  126,219 
Less: Imputed interest  (9,056)
Present value of net minimum lease payments  117,163 
Less: Current maturities of capital leases obligations  (5,747)
Long-term capital leases obligations $111,416 
19

  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 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
8.11.  INTANGIBLE ASSETASSETS

Intangible assets consist of customer lists purchased from three unrelated parties pursuant to the agreements dated June 21, 2005, and April 28, 2011.2011 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 May 31,November 30, 2013 is $49,013 and 2012 are $44,876 and $44,874; for the nine months ended Mayis $44,875. The future amortization as of August 31 2013 and 2012 are $134,626 and $134,626 respectively.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-23

9.ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
12.  INCOME TAXES EXPENSES

The entities withinthat 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., the law of which noU.S.A.. No provision for U.S.A. profits tax has been made foras the nine months ended May 31, 2012 as it was suffering lossesCompany has sustained losses.

The Company’s subsidiary, AlmondAlmonds 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'sCompany’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 subject to statutorya provision for Hong Kong profits tax in the amount of 16.5% if it incurred revenue and profits in Hong Kong.

For$12,955 has been made for the Company’s subsidiary, ADGS Advisory Limited,three months ended November 30, 2013. No provision for Hong Kong profits tax has been made for the nine months ended May 31, 2013 amounted to $81,850 and no provision for Hong Kong profits tax has been made2012, as the subsidiary sufferedsustained tax losses for the nine months ended May 31, 2012.in that period.

For theThe Company’s subsidiary, ADGS Tax Advisory Limited, nois domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the ninethree months ended May 31,November 30, 2013 and 2012.

For theThe 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 ninethree months ended May 31,November 30, 2013.

The Company’s subsidiary, T H Strategic Management Limited acquired on October 20, 2013, is domiciled in Hong Kong, and 2012 amounted to $165 and $Nil respectively.a provision for Hong Kong profits tax in the amount of $394 has been made for the three months ended November 30, 2013.

 
20F-24

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
9.12.  
INCOME TAXES EXPENSES (…/Cont’d)

The Company's income tax for the ninethree months ended May 31,November 30, 2013 and 2012 can be reconciled to the income before income tax expenses in the statement of operations as follows:

 For the Three months ended May 31,  For the Nine months ended May 31,  For the three months ended November 30, 2013  For the three months ended November 30, 2012 
 2013  2012  2013  2012       
Income/(loss) before tax $130,334  $(4,068) $519,799  $(145,373)
Profit before tax $375,028  $6,332 
                        
Expected Hong Kong income tax expense $21,505  $-  $85,766   -         
at statutory tax rate of 16.5%                  15,470   1,044 
        
Temporary difference  17,517   -   (3,751)  -   (2,121)  (1,044)
Utilization of tax losses  -   -   -   - 
Unrealized tax loss  -   -   -   - 
Actual income tax expense $39,022  $-  $82,015  $-  $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:

 May 31, 2013  August 31, 2012  
November 30,
 2013
  
August 31,
2013
 
 (Unaudited)     (Unaudited)    
Deferred tax asset:            
Unrecognized tax losses $-  $26,111  $-  $- 
        
Deferred tax liability:                
Difference between book and tax depreciation $6,203  $7,081  $-  $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 for the period ended Mayas of November 30, 2013 and August 31, 2013, no deferred tax asset hastaxes have been provided for in the accounts.
21


ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
10. BANK LOANS
The details of the bank loans outstanding as of May 31, 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$1,014,256
(HK$7,909,875)
 SCB annual rate of 3%  Term loan January 30, 2012 to December 31, 2035 Property and personal guaranteed from related party and third party
          
Shanghai Commercial Bank ("SCB") US$219,037 (HK$1,708,199) SCB annual rate of 6.25% Term loan July 9, 2012 to July 9, 2017 Property and personal guaranteed from related party and third party
           
Shanghai Commercial Bank ("SCB") 
US$244,328
 (HK$1,905,435)
 SCB annual rate of 3.5% Term loan January 30, 2012 to January 30, 2032 Property and personal guaranteed from related party and third party
           
Shanghai Commercial Bank ("SCB") 
US$769,359
(HK$6,000,000)
Loan limit:
US$769,359
 SCB annual rate of 0.75% over prime or annual rate of 2% over the overnight HIBOR, whichever is higher Revolving loan Renewal every six months Property and personal guaranteed from related party and third party
           
Hang Seng Bank ("HSB")
US$146,406
  (HK$1,141,776)
 HSB monthly rate of 0.38% Term loan June 27, 2012 to June 26, 2017 Property and personal guaranteed from related party and third party
           
Hitachi Capital (HK) Ltd("HC")
US$14,563
(HK$113,568)
 HC annual rate of 6.98% Term loan June 29, 2012 to November 25, 2013 Personal guaranteed from related party
          
DBS Bank (“DBS”)
US$1,202,494
  (HK$9,377,890)
 DBS annual rate of 2.75% Installment loan November 12, 2012 to October 12, 2037 
Dynamic’s property
 
           
 $3,610,443        

 
22F-25

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
10.13.  BANK LOANS   (…/Cont’d)

The details of the bank loans outstanding as of November 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, 20122013 are as follows:

 Outstanding loan Current annualized       Outstanding loan Current annualized      
Name of bank amount interest rate Nature of loans Term of loans Collateral amount interest rate Nature of loans Term of loans Collateral
                    
Shanghai Commercial Bank ("SCB") 
US$1,037,480
(HK$8,092,342)
 SCB annual rate of 3%  Term loan January 30, 2012 to December 31, 2035 Property and personal guaranteed from related party and third party 
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
                  
Shanghai Commercial Bank ("SCB") US$252,781 (HK$1,971,696) SCB annual rate of 6.25% Term loan July 9, 2012 to July 9, 2017 Property and personal guaranteed from related party and third party
          
Shanghai Commercial Bank ("SCB") 
US$251,184
 (HK$1,959,236)
 SCB annual rate of 3.5% Term loan January 30, 2012 to January 30, 2032 Property and personal guaranteed from related party and third party
          
Shanghai Commercial Bank ("SCB") 
US$769,231
(HK$6,000,000)
 
Loan limit: US$769,231
 SCB annual rate of 0.75% over prime or annual rate of 2% over the overnight HIBOR, whichever is higher Revolving loan Renewal every six months Property and personal guaranteed from related party and third party
          
Hang Seng Bank ("HSB")Hang Seng Bank ("HSB")
US$173,748
  (HK$1,355,232)
 HSB monthly rate of 0.38% Term loan June 27, 2012 to June 26, 2017 Property and personal guaranteed from related party and third partyHang 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$40,561
(HK$316,372)
 HC annual rate of 6.98% Term loan June 29, 2012 to November 25, 2013 Personal guaranteed from related party
Hitachi Capital (HK) Ltd ("HC")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
         
DBSDBS
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
                    
$2,524,985         $2,286,785        
 
F-26

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 May 31,November 30, 2013 and 2012 are $26,685amounted to $14,663 and $36,672; nine months ended May 31, 2013 and 2012 are $82,629 and $41,498$29,260 respectively.

Bank loans repayment schedule as of May 31, 2013 is as follows:
 
 2013  2012  
November 30,
2013
  
August 31,
2013
 
Year ending August 31,            
2013 (Three months) $824,233  $- 
2014  165,559   - 
2014 (Nine months)  76,905   107,548 
2015  172,725   -   114,303   114,303 
2016  180,242   -   118,253   118,253 
2017  147,418   -   90,382   90,382 
2018  79,363   79,363 
Thereafter  2,120,266   -   1,776,936   1,776,936 
 $3,610,443  $-  $2,256,142  $2,286,785 

The bank loans as outlined in the aforementioned tables are secured by the directors' and third parties' properties and personal guarantees. Please refer to note 5 about the usage of the proceeds of bank loans.

 
23F-27

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
11.14.  DEFERRED REVENUE

  
November 30,
2013
  
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's credit risk is somewhat limited due to a relatively large customer base. During the three and nine months ended MayNovember 30, 2013 and the year ended August 31, 2013, and 2012, the Group had no customer which accounted for 10% or more of total revenue.revenue or 10% or more of total accounts receivable.

12.16.  RELATED PARTY TRANSACTIONS

Significant operating expenses arising from transaction with a related company was as follows.

  For the Three months ended May 31,  For the Nine months ended May 31, 
  2013  2012  2013  2012 
                 
Sub-contracting fee $21,156  $21,155  $62,801  $56,415 
  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 the sub-contracting feefees included as part of the cost of revenues to the Company's Chief Operating Officer Ms. Angela Tso.and a company controlled by one of the Company’s directors for the three months ended November 2013 and 2012.

See Note 5.Notes 7 and 8 for a discussion of advances to and from related parties.
 
 
24F-28

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)

13.17.  COMMITMENTS AND CONTINGENCIES

Commitments and contingencies

(a)For the period ended May 31, 2013, the Company has made a deposit amounting to $574,364 (HK$ 4.48 million) for the acquisition of Motion Tech Development Limited, a property holding company incorporated in Hong Kong.
(b)  In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising out ofwithin 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. As management has not become aware of any liability claims arising from any incident over the year, theThe Group has not recognized a liabilityprovision for claims no contingent liability has been recordedor contingencies as of May 31,November 30, 2013 and August 31, 2012.2013.

(c)(b)  Rental expense amounted to $32,636$42,543 (HK$329,836) and $39,598$40,980 (HK$319,620) for the three months ended May 31, 2013 and 2012; $113,099 and $110,369 for the nine months ended May 31,November 30, 2013 and 2012 respectively. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of May 31,November 30, 2013 are payable as follows:

Year Ended August 31, Rental 
2013(Three months) $29,325 
2014  112,890 
Period Ended November 30, Rental 
2014 (Nine months) $100,191 
2015  84,667   94,206 
2016  -   - 
2017  -   - 
2018  - 
Over five years  -   - 
 $226,882  $194,397 

(c)  Deferred revenue amounted to $544,179 (HK$4.2 million) and nil for three months ended November 30, 2013 and 2012 respectively. The total future revenue under non-cancellable agreement with respect to consultancy service income as of November 30, 2013 are receivable as follows:

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 Kong's economy may influence the business, financial condition, and results of operations of the Company.

Among other risks, the Group's operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.
 
 
25F-29

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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, and 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 isuntil November 19, 2013 was 30% owned by ADGS Tax Advisory Limited.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”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)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, and ADGS Tax owns a 30% interest incompany. Dynamic Golden Limited which is also a Hong Kong incorporated company.

Recent Developments

On April 12,company, which was 30% owned by ADGS Tax until November 19, 2013 Life Nutrition Products, Inc. acquired 100% of the issued and outstanding capital stock ofhas since been 30% owned by Almonds Kisses BVI, owns an investment in exchange for 20,155,000 shares of our common stock, representingresidential real property located in the aggregate approximately 80.1% of our issued and outstanding shares of common stock.TuenMun, New Territories, Hong Kong.
26


The chart below presents our corporate structure as of the date of this report:

4

ADGS Advisory, Inc.
(formerly Life Nutrition Products, Inc.),
a Delaware corporation
 
ADGS Advisory, Inc.ê 100%
(formerly Life Nutrition Products, Inc.),
a Delaware corporation
 
ê100%
Almonds Kisses Limited (BVI),
a British Virgin Islands company
 
ê 100%ê 100%
ê 100%
ê 100%
ê 30%
     
ADGS Advisory LimitedVantage Advisory Limited,êTH Strategic Management100%Motion Tech DevelopmentDynamic Golden
a Hong Kong corporationa Hong Kong corporationLimited, a Hong KongLimited, a British Virgin IslandsLimited, a Hong Kong
  corporationcompanycorporation
ADGS Advisory Limited,
a Hong Kong corporation
ê 80%
 
Vantage Advisory Limited
a Hong Kong corporation
ê80%   
     
ADGS Tax Advisory Limited
a Hong Kong corporation
   
ê30%
Dynamic Golden 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

The accompanying unaudited condensedThese interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and related notesdisclosures 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 of America (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they may not include all of the information and footnotes required by GAAP for completeStates. These unaudited consolidated financial statements.  All adjustments that are,statements should be read in the opinion of management, of a normal recurring nature and are necessary for a fair presentation ofconjunction with the consolidated financial statements have been included.The results of operation for the three months and nine months ended May 31, 2013, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.
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The preparation of the condensed consolidated financial statements in accordance with US GAAP requires managementaccompanying footnotes of the Company to make a number of estimatesfor the year ended August 31, 2013, as filed in Form 10-K with the Securities and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting year. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-lived assets; valuation allowances for receivables, realizable values for inventories. Actual results could differ from those estimates.Exchange Commission on December 24, 2013.


The unaudited condensed consolidated financial statements include all accounts of the Company and its subsidiarysubsidiaries as disclosed in note 1. All material inter-company balances and transactions have been eliminated.eliminated in consolidation.

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 financial statements are presented on a going concern basis. Although the Company had a working capital deficit of$233,445 at November 30, 2013. Management plans to continue its efforts to raise funds through debt or equity in the near future to sustain our 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 of the revenue 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.

5

In fixed-fee billing arrangements, the GroupCompany 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 every monthin 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.

Purchased intangible assets(ii) Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and goodwillwhen 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 GroupCompany recognizes the management fee income when service is provided.  Services include providing administration support service or accounting service to companies.

Purchased intangible assets
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;

-   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.
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Income taxes

The GroupCompany 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 GroupCompany records uncertain tax positions when it is more likely than not that the tax positions will not be sustained.sustained upon examination by the respective tax authority.

The GroupCompany recognizes interest and penalty related to income tax matters as income tax expense. As of MayNovember 30, 2013 and August 31, 2013, and 2012, 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'sKong’s economy may influence the business, financial condition, and results of operations of the Company.

Among other risks, the Company's operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.

6

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 in thatalthough we have no immediate plansrecently made acquisitions and we plan to make any additional acquisitions althoughin 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 soany of the foregoing on terms which will be acceptable to us.
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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 November 30, 2013 (unaudited) and August 31, 20122013 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,524,985$2,256,142 and $2,286,785, respectively. We also had bank overdrafts of $818,479 as of November 30, 2013 compared to outstandingwith $744,077 as of August 31, 2013. Interest expense from bank loans in the principal amount of $ 3,610,446 and a bank overdraft of $620,761 at May 31, 2013 .   Interest expenseoverdrafts (excluding capital lease interest) for the yearthree months ended August 31, 2012November 30, 2013 was $47,754$14,663 and for the ninethree months ended May 31, 2013November 30, 2012 was $99,022.$29,260. Such loans are primarily term loans with maturity dates ranging from November 2013 to December 2035.October 2037. Approximately $1.5$0.5 million of the bank loans are to be repaid over the next five years. The bank overdraft is due on demand but is not a breach or default under the loan facilities. 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. In addition, there can be no assurance that we will be able to continue to obtain and/or refinance current bank loans, especially if any bank overdrafts remain outstanding which may deter financial institutions from extending credit to us.
 
In addition to the foregoing, as of May 31,November 30, 2013, related party receivables dueadvances to borrowings from the Company by one of the Company’s principal shareholdersshareholder total $ 1,853,265 .$208,921. The se borrowingsadvances to shareholder represent unsecured, non-interesting bearing transactionsloans without fixed repayment terms,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 shareholder 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 ha spreviously informally agreed to repay such amounts on or before November 1, 2013.2013 but has since revised such date to February28, 2014. The foregoing represents another key uncertainty since no assurance can be made that such borrowingsadvances will be repaid on or before November 1, 2013February 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.

7

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.
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Other comprehensive income

Other comprehensive income reflects foreign currency translation adjustment according to our accounting policies.

For the Three Months Ended May 31, 2013 and 2012 and For the NineMonths Ended May 31,November, 2013 and 2012 (unaudited)

The following table presents the consolidated statements of operations of the Company for the three months ended May 31,November, 2013 as compared to the three months ended November, 2012.
  
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 three months ended November, 2013 expanded rapidly. We recorded revenue of $1.1 million for the three months ended November, 2013, representing an increase of $0.5 million as compared to the results of operations for the three months ended May 31, 2012 and for the nine months ended May 31, 2013 as compared to the results of operations for the nine months ended May 31, 2012.

  
For the Three Months Ended
May 31,
  
For the Nine Months Ended
May 31,
 
  2013  2012  2013  2012 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
             
Revenue $889,591  $510,758  $2,795,225  $938,578 
Less: Operating expenses                
Direct cost of revenue  (546,615)  (372,400)  (1,513,654)  (659,468)
General and administrative expenses  (178,974)  (105,674)  (665,329)  (382,905)
Operating income/(loss)  164,002   32,684   616,242   (103,795)
                 
Other income:                
Bank interest received  320   -   320   - 
Other income  2,259   146   2,259   146 
                 
Other expenses  (36,247)  (36,898)  (99,022)  (41,724)
Income tax expense  (39,022)  -   (82,010)  - 
Net income/(loss)  91,312   (4,068)  437,789   (145,373)
                 
Other comprehensive expense  (99)  -   (219)  - 
Total comprehensive income/(loss)  91,213   (4,068)  437,570   (145,373)
Comprehensive income attributable to non-controlling interests  5,676   7,554   17,021   16,587 
Comprehensive income/(loss) attributable to ADGS Advisory Inc. $96,889  $3,486  $454,591  $(128,786)
Revenue

For the Three Months Ended May 31, 2013 and 2012

We recorded $0.9$0.6 million for the three monthssame period ended May 31, 2013, representing an increase of $0.4 million as compared to $0.5 million for the three months ended May 31,November, 2012. The increase in revenue was caused by two reasons, firstly, stability of income from the acquisition of client base. Secondly, there was significant increase in revenue generated from consultancy in liquidation and taxation incurred during the three months ended May 31, 2013.
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For the Nine Months Ended May 31, 2013 and 2012

Our business for the nine months ended May 31, 2013 expanded rapidly.  We recorded $2.7 million for the nine months ended May 31, 2013, representing an increase of $1.8 million as compared to $0.9 million for nine months ended May 31, 2013.  The increase in revenue was caused by three reasons, firstly,primarily due to the acquisitionincrease of client bases from various companies such as retiring HKICPA practice,revenue stream in corporate restructuring, insolvency services and multi-disciplinary advisory services and a steadily growth in accounting company, and secretarial company.  One of the acquisition agreements was signed on April 28, 2011, but there was a time lapse for the clients’revenue being transferred to us, the revenue gradually reflected since November 2011 resulting to a significant increase in May 31, 2013 as compared to May 31, 2012. Secondly, there was significant increase in revenue generated from consultancy in liquidation and taxation.  Thirdly, there was a growth of new clients in our accountancy, bookkeeping and secretarialcorporate services.

General and administrative expenses

  
For the Three Months Ended
May 31,
     
For the Nine Months Ended
May 31,
    
  2013  2012  %  2013  2012  % 
  (unaudited)  (unaudited)     (unaudited)  (unaudited)    
                   
Revenue $889,591  $510,758   74% $2,795,225  $938,578   198%
Less: Operating expenses                        
Direct cost of revenue  (546,615)  (372,400)  47%  (1,513,654)  (659,468)  130%
General and administrative expenses  (178,974)  (105,674)  69%  (665,329)  (382,905)  74%
Operating income/(loss) $164,002  $32,684   402% $616,242  $(103,795)  694%

For the Three Months Ended May 31, 2013 and 2012
  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 direct cost of revenuegeneral and administrative expenses is mainly caused by the increased expenses incurred for consultancy fee, staff salaries and costincrease of providing insolvency services.

The increaserevenue stream in our services which led to more general and administrative expenses caused by thestability of income from the acquisition of client bases and the increase in revenue generated from consultancy in liquidation and taxation incurred during the three months ended May 31, 2013.

For the Nine Months Ended May 31, 2013 and 2012

The significant increase in direct cost of revenue is mainly caused by the increased expenses incurred for consultancy fees, staff salaries and cost of providing insolvency services.

One of the acquisition agreements was signed on April 28, 2011, but there was a time lapse for the clients’ revenue being transferred to us, the revenue gradually reflected since November 2011 resulting to a significant increase in May 31, 2013 as compared to May 31, 2012.  Such increase for the nine months ended May 31, 2013 was primarily due to the following:

(i) For the nine months ended May 31, 2012, the increase in revenue resulting from the acquisition was gradually reflected from November 2011. However, for the nine months ended May 31, 2013, the revenue from the acquisition had already stabilized and reflected revenue generated from nine months operations.
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(ii) There was significant increase in revenue generated from consultancy in liquidation and taxation.

(iii) There was a growth of new clients in our accountancy, bookkeeping and secretarial services.

As a result of (i) and (ii), our general and administrative expenses have been increased accordingly.incurred.

Other expense

Other expense represents the interest expense for the bank loans.

For the Three Months Ended May 31, 2013loans of $28,284 and 2012

There was no significant fluctuation in interest expense$29,427 for the three months ended May 31, 2013 and 2012. We recorded $36,247 and $36,898 for the nine months ended May 31,November, 2013 and 2012 respectively.

For the Nine Months Ended May 31, 2013 and 2012

We recorded $99,022 and $41,724 for the nine months ended May 31, 2013 and 2012 respectively.  The increase of $57,298 was caused byinterest from a new bank loan on November 12, 2012 and increase of interest on bank overdraft.

Other comprehensive expenseincome/(loss)

Other comprehensive expense reflectsincome/(loss) represents the foreign currency translation adjustment according to our accounting policies.of $5,922 and $51 loss for the three months ended November, 2013 and 2012 respectively.

Liquidity and Capital Resources

As of May 31,November 30, 2013, we had cash on hand of $78,459,$471,625, which represented a decreasean increase of $50,542$307,311 from $129,001$164,314 as of August 31, 2012, other2013, total current assets of $ 2,290,124 ($259,544 as of August 31, 2012),$1,778,918, and othertotal current liabilities of $1,875,480 ($954,944 as of August 31, 2012).$2,012,363. Working capital was in negative balancedeficit of $566,389 for August 31, 2012, positive balance of $ 621,649 for May 31, 2013$233,445 and the ratio of current assets to current liabilities was 0.410.9 to 1 as of November 30, 2013.

As of November 30, 2013 we had long term debt of $3,380,843, which represented an decrease of $72,769 from $3,453,612 as of August 31, 2012 and 1. 332013; total assets of $5,681,959 as of November 30, 2013 representing an increase of $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 May 31,November 30, 2013.  The ratio has increased from 0.41 to 1 as of August 31, 2012 to 1.64 to 1 as of May 31, 2013, which indicated that the Company had greatly improved its short-term financial strength.

The Company’s financial statements are presented on a going concern basis.  At May 31, 2013, the Company had a working capital surplus of $ 621,649 and net liabilities of $255,690.  The Company started to generate a net profit of $96,988 during the three months period ended May 31, 2013 (a net profit of $3,486 for the three months period ended May 31, 2012); a net profit of $454,810 during the nine months period ended May 31, 2013 (a net loss of $128,786 for the nine months period ended May 31, 2012).  These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company'sCompany’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 adjustmentsadjustment that might result from the outcome of this uncertainty. ManagementOur management plans to continue its efforts to raise funds through debt or equity, improve its profitability in the near future to sustain its operations.
 
 
339

 

The following is a summary of cash provided by or used in each of the indicated type of activities during the ninethree months ended May 31,November, 2013 and 2012, respectively:

 For the NineMonths EndedMay 31,  For the Three Months Ended November 
 2013  2012  
2013
 (unaudited)
  
2012
(unaudited)
 
 (unaudited)  (unaudited) 
Cash provided by (used in):      
Cash provided by/(used in):      
Operating activities $589,307  $14,187  $229,511  $129,637 
Investing activities  (582,547)  (635)  (169,602)  (8,118)
Financing activities    (57,506)  119,553   247,220   (78,668)
Effect of change of exchange rates  204   (4)  182   (33)
                
Cash, as of beginning of period  129,001   10,907 
Cash, as of end of period $(78,459) $144,008 
Cash, beginning of period  164,314   129,001 
Cash, end of period $471,625  $171,819 

Net cash provided by operating activities was $589,307$229,511 for the ninethree months ended May 31,November 2013, as compared to net cash provided by operating activities of $14,187$129,637 for the nine monthssame period ended May 31, 2012.  The increase of cash provided by operating activities was mainly due to (i) an increase of net income of $454,591 for May 31, 2013 as from net loss of $128,786 for May 31, 2012 the increase of which is discussed in the above section ‘Revenue’,  (ii) a decrease of $718 for utility and other deposits, (iii) a total of $398,769 increased in accrued liabilities, temporary receipts and income tax payable for May 31, 2013 as compared to May 31,November 2012. The increase was mainly caused by the accrued expenses incurred for audit fee and salary for May 31, 2013.  There were no such accruals for May 31, 2012, (iv) the increasedue to a net profit of cash provided by operating activities had been$361,679, offset by an increase in the accounts receivable of $373,137$(61,483), other receivables of $(57,913), accrued liabilities of $(35,081) accrued expenses for the Company and prepaid expensesdeferred revenue of $45,167 for May 31, 2013.$(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 $ 582,547 $(169,602)for the ninethree months ended May 31,November 2013, as compared to net cash used in investing activities of $635$8,118 for the ninethree months ended May 31,November 2012. The increase was mainly due to purchase of property and equipment of $133,368 and a deposit for a proposedthe partial payments on the acquisition of $574,429an intangible asset which has not been completed aswas a client base from an independent unrelated third party and acquisition of May 31,subsidiary, TH Strategic Management Limited,which amounted to $38,705 and $112,826, respectively paid during the three months period ended November 30, 2013.  In connection therewith, the Company intends to acquire all of the outstanding shares of another entity which will become a wholly-owned subsidiary of the Company.

Net cash used inprovided by financing activities was $5 7,506$247,220 for the ninethree months ended May 31,November 2013, as compared to net cash providedused in by financing activities of $119,553$78,668 for the ninethree months ended May 31,November 2012. The increase was primarily due to a totalcaused by repayment of $1,223,187 proceeds fromrelated party advances (shareholder) of $209,601 and bank overdrafts of $74,398, and repayment of bank loans and bank overdraft of $620,761, offset by$(30,641). The advances to shareholder borrowings of $ 4,012,216 less amounts repaid of $2,400,236 during the period .

The shareholder borrowings represented unsecured, non-interesting bearing loans without fixed repayment terms,terms. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder ha spreviously informally agreed to repay such amounts on or before November 1, 2013.2013 but has since revised such date to February28, 2014.

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The Company had bank loans with outstanding principal of $3.6$2.3 million (excluding a bank overdraft of $0.62 million) as of May 31,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 Terms of loans Outstanding loan amount Current annualized interest rate Collateral
                
Term loan Ranging from 1 year to 23 years $1,668,590 
Ranging from annual rate
from 0.38% to 6.98%
 
Property and
personal guarantee  from related party  and third party
 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
                 
Revolving loan Renewal in every 6 months with limit of $769,359, fully utilized 769,359 Annual rate of 0.75% over prime or annual rate of 2%over the overnight HIBOR, whichever is higher 
Property and
personal guarantee  from related party  and third party
           $2,256,142    
Installment loan 25 years 1,202,494 Annual rate of 2.75% Property
        
   $3,610,443    

The Company had bank loans outstanding of $2.5 million as of August 31, 2012. 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 23 years $1,755,754 
Ranging from annual rate
from 0.38% to 6.98%
 
Property and
personal guarantee  from related party  and third party
         
Revolving loan Renewal in every 6 months with limit of $769,231, fully utilized 769,231 Annual rate of 0.75% over prime or annual rate of 2%over the overnight HIBOR, whichever is higher 
Property and
personal guarantee  from related party  and third party
         
    $2,524,985    
The valuations for the above collaterals on July 5,August 15, 2013 were approximately $6m$3.7m while the total outstanding loan amount was approximately $3.6m, resulting to an unused borrowing capacity of $2.4m.$2.3m.

10

The Company had assets held under capital leases, which representing therepresent leases of motor vehicle. The cost of the motor vehicle under capital lease was $153,292$112,913 at May 31,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 May 31,November 30, 2013 are as follows:
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  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 

  Amount 
Year ending August 31,   
2013 (Three months) $6,796 
2014  27,183 
Thereafter  92,240 
Total minimum lease payment $126,219 
Less: Imputed interest  (9,056)
Present value of net minimum lease payments $117,163 
Less: Current maturities of capital leases obligations  (5,747)
Long-term capital leases obligations $111,416 
Material capital expenditure commitments

WeanticipateWe 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 May 31,November 30, 2013.
Contractual Obligations
The following table sets forth information regarding the Company's contractual payment obligations excluding the bank overdrafts of $0.8 million as of November 30, 2013.

Contractual Obligations
The following table sets forth information regarding the Company's contractual payment obligations (excluding the bank overdraft of $0.62 million) as of May 31, 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 
  Payment due by period 
Contractual obligations Total  < 1 year  1 - 3 years  3 - 5 years  > 5 years 
                
Borrowing:               
  - Capital lease $126,219  $6,796  $27,183  $92,240  $- 
  - Bank loan  3,610,443   824,233   518,526   147,418   2,120,266 
Operating lease obligation:                    
  - Office rental  226,882   29,325   197,557   -   - 
                     
  $3,963,544  $860,354  $743,266  $239,658  $2,120,266 

 
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The following table sets forth information regarding the Company's contractual payment obligations as of August 31, 2012. 
                
  Payment due by period 
Contractual obligations Total  < 1 year  1 - 3 years  3 - 5 years  > 5 years 
                
Borrowing:               
  - Capital lease $14,599  $9,615  $4,984  $-  $- 
  - Bank loan  2,524,985   919,392   378,462   108,410   1,118,721 
Operating lease obligation:                    
  - Office rental  319,608   122,063   112,883   84,662   - 
Commitment to acquire Vantage  645   645   -   -   - 
  $2,859,837  $1,051,715  $496,329  $193,072  $1,118,721 
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 three months ended November 30, 2013 would increase/decrease by US$3,614 as compared with the combined post-tax profit for the three months ended November 30, 2012.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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.
 
Item 4. Controls and Procedures.

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 hashave concluded that, as of May 31,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.
 
 
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PART II - OTHER INFORMATION

Item 1.1. Legal Proceedings.

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.
 
Item 2.2. Unregistered Sales of Equity Securities and Use of Proceeds.

On February 7, 2013, we issued 750,000 shares of common stock to Wang Yu Long, a designee of Conqueror Group Limited ("Conqueror"), pursuant to a subscription agreement dated January 5, 2013 between Conqueror and the Company whereby Conqueror agreed to accept 750,000 shares in exchange for funds advanced and other loans made by Conqueror to the Company prior to the date thereof in the amount of $160,038.  The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation S thereunder. Wang Yu Long is not a “US Person” (as defined in Rule 902 of Regulation S) and the certificate representing the shares issued has been endorsed with a restrictive legend consistent with that exemption.None.

On April 12, 2013, we issued an aggregate of 20,155,000 shares of our common stock to the eight former shareholders of Almonds Kisses BVI in exchange for all of the outstanding shares of capital stock of Almonds Kisses BVI.  The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation S thereunder.  None of such former shareholders of Almonds Kisses BVI is a “US Person” (as defined in Rule 902 of Regulation S) and the certificates representing the shares issued to each of them was endorsed with restrictive legends consistent with that exemption.

Item 3.3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5.5. Other Information.

None.
 
 
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Item 6. Exhibits.
 
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 May 31, 2013formattedNovember 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Deficit,Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements
_________________________________________
*
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.
 
 
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SIGNATURES

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

 
ADGS ADVISORY, INC.
(Registrant) 
    
Dated: August 28, 2013January 24, 2014
By:/s/ Li Lai Ying 
  Li Lai Ying, 
  Chief Executive Officer and
(Principal Executive Officer)
Dated: January 24, 2014
By:/s/ Tong Wing Shan
Tong Wing Shan
Chief
Financial Officer (Principal Executive
Officer and
(Principal Financial Officer) 
 
 
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