Attached files
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8-K/A - FORM 8K/A - STUDIO II BRANDS INC | f8ka7clean20120418.htm |
EX-99 - EXHIBIT 99.8 - STUDIO II BRANDS INC | exhibit998final4182012.htm |
EX-99 - EXHIBIT 99.1 - STUDIO II BRANDS INC | exhibit991final4182012.htm |
EX-99 - EXHIBIT 99.5.1 - STUDIO II BRANDS INC | exhibit9951final4182012.htm |
Exhibit 99.2.1
HIPPO LACE LIMITED | ||
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) | ||
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Report of Independent Registered Public Accounting Firm | 1 | |
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Consolidated Balance Sheets as of December 31, 2010 | 2 | |
| and March 31, 2010 (Restated) |
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Consolidated Statements of Income and |
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| Comprehensive Income for the Nine-Months Ended December 31, 2010 |
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| and for the Period from December 11, 2009 (Inception) to March 31, 2010 (Restated) | 3 |
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Consolidated Statement of Stockholders Equity |
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| for the Nine-Months Ended December 31, 2010 and for the Period from December 11, 2009 (Inception) to March 31, 2010 (Restated) | 4 |
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Consolidated Statements of Cash Flows |
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| for the Nine-Months Ended December 31, 2010 and for the Period from December 11, 2009 (Inception) to March 31, 2010 (Restated) | 5 -6 |
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Notes to the Consolidated Financial Statements (Restated) | 7 33 |
UHY VOCATION HK CPA LIMITED
Chartered Accountants
Certified Public Accountants
3/F, Malaysia Building, 50 Gloucester Road, Wanchai,
HONG KONG,
Tel (852) 2332 0661(23 lines)
Fax (852) 2332 0304, 2388 2086
E-mail :cpa@uhy-hk.com
Website www.uhy-hk.com
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
HIPPO LACE LIMITED
We have audited the accompanying consolidated balance sheet of Hippo Lace Limited and subsidiary (the Company) as of December 31, 2010, and the related consolidated statement of operations, changes in stockholders equity, and cash flows for the period from April 1, 2010 to December 31, 2010. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hippo Lace Limited and subsidiary as of December 31, 2010, and the consolidated results of its operations and its cash flows for the period from April 1, 2010 to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ UHY Vocation HK CPA Limited
UHY VOCATION HK CPA LIMITED
Certified Public Accountants
Hong Kong, the Peoples Republic of China, 20 APR 2012
An independent member firm of UHY
1
HIPPO LACE LIMITED | ||||
CONSOLIDATED BALANCE SHEETS (RESTATED) | ||||
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| December 31, 2010 | March 31, 2010 |
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ASSETS |
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CURRENTS ASSETS |
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Cash |
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| $ 25,369 | $ 15,322 |
Due from related party |
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| 12,985 | 30,817 |
Accounts receivable |
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| 10,273 | - |
Other receivable |
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| 5,895 | 5,734 |
Inventories |
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| 2,031 | 2,604 |
Total current assets |
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| 56,553 | 54,477 |
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Property and equipment, net |
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| 111,564 | 124,789 |
Security deposits |
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| 41,216 | 41,077 |
Goodwill |
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| 118,758 | 118,758 |
TOTAL ASSETS |
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| $ 328,091 | $ 339,101 |
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LIABILITIES AND STOCKHOLDER'S EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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| $ 28,383 | $ 32,673 |
Income tax payable |
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| 6,233 | 2,421 |
Stockholders loan |
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| 184,226 | - |
Due to related party |
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| 6,687 | 8,812 |
TOTAL CURRENT LIABILITIES |
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| 225,529 | 43,906 |
Stockholders loan |
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| - | 196,266 |
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TOTAL LIABILITIES |
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| 225,529 | 240,172 |
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STOCKHOLDER'S EQUITY |
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Common stock, 50,000 shares authorized without a par value; |
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1 share issued and outstanding |
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Addition paid-up capital |
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| 86,198 | 86,198 |
Retained earnings |
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| 16,363 | 12,730 |
TOTAL STOCKHOLDER'S EQUITY |
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| 102,562 | 98,929 |
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ 328,091 | $ 339,101 | ||
See accompanying notes to audited consolidated financial statements. |
2
HIPPO LACE LIMITED | ||||
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (RESTATED) | ||||
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| For the nine months ended December 31, | For the period from December 11, 2009 (Date of inception) to March 31, |
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| 2010 | 2010 |
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REVENUE |
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Food and beverage income |
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| $ 252,399 | $ 23,695 |
Franchise and management fee income |
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| 22,266 | - |
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| $ 274,665 | $ 23,695 |
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Cost of goods sold (exclusive of depreciation) |
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| (83,090) | (9,008) |
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Gross profit |
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| 191,575 | 14,687 |
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Operating expenses |
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| (186,833) | (51,533) |
OPERATING INCOME/(LOSS) BEFORE INCOME TAXES | 4,742 | (36,846) | ||
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OTHER INCOME/(EXPENSES) |
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Other income |
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| 3,473 | 51,997 |
Other expenses |
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| (770) | - |
TOTAL OTHER INCOME, NET |
| 2,703 | 51,997 | |
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INCOME BEFORE INCOME TAXES |
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| 7,445 | 15,151 |
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INCOME TAXES EXPENSES |
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| (3,812) | (2,421) |
NET INCOME |
| $ 3,633 | $ 12,730 | |
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Earnings per common share |
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Basic and fully diluted |
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| $ 3,633 | $ 12,730 |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 1 | 1 | ||
See accompanying notes to audited consolidated financial statements. |
3
| HIPPO LACE LIMITED | |||||
| CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY | |||||
| FOR THE PERIOD FROM DECEMBER 11, 2009 (INCEPTION) TO MARCH 31, 2010 | |||||
| AND FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED) | |||||
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| Common Stock | Additional |
| Total | ||
| paid-up | Retained | stockholder's | |||
| Number | Amount | capital | earnings | equity | |
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Balance at December 11, 2009 (date of inception) |
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- | $ - | - | $ - | $ - | ||
Common stock issued for cash | 1 | 1 | - | - | 1 | |
Additional paid-up capital | - | - | 86,198 | - | 86,198 | |
Net income for the period | - | - | - | 12,730 | 12,730 | |
Balance as of March 31, 2010 | 1 | 1 | 86,198 | 12,730 | 98,929 | |
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Net income for the period | - | - | - | 3,633 | 3,633 | |
Balance as of December 31, 2010 | 1 | $ 1 | $ 86,198 | $ 16,363 | $ 102,562 | |
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| See accompanying notes to audited consolidated financial statements. |
4
| HIPPO LACE LIMITED | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) | |||||||
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| For the nine months ended December 31, |
| For the period from December 11, 2009 (Date of inception) to March 31, | |||||
| 2010 |
| 2010 | |||||
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income | $ 3,633 |
| $ 12,730 | |||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation | 18,104 |
| 45 | |||||
Changes in operating assets and liabilities: |
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Due from related party | 17,832 |
| (20,545) | |||||
Account receivable | (10,273) |
| - | |||||
Other receivable | (161) |
| (5,417) | |||||
Inventories | 573 |
| 2,597 | |||||
Security deposits | (139) |
| 9,218 | |||||
Accounts payable and accrued expenses | (4,290) |
| 17,576 | |||||
Income tax payable | 3,812 |
| 2,421 | |||||
Due to related party | (2,125) |
| (22,005) | |||||
Stockholders loan | 184,226 |
| - | |||||
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NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES | 211,192 |
| (3,380) | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Cash paid for acquisition of subsidiary, net of cash acquired | - |
| (177,565) | |||||
Purchase of property and equipment | (4,879) |
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NET CASH USED IN INVESTING ACTIVITIES | (4,879) |
| (177,565) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from stockholders loan | (196,266) |
| 196,266 | |||||
Cash received from issuance of common stock | - |
| 1 | |||||
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NET CASH PROVIDED BY FINANCING ACTIVITIES | (196,266) |
| 196,267 | |||||
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NET INCREASE IN CASH | 10,047 |
| 15,322 | |||||
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CASH |
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Beginning of period | 15,322 |
| - |
5
End of period | $ 25,369 |
| $ 15,322 | |||||||||||||
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Supplemental disclosures of cash flow information: |
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Cash paid for interest | $ - |
| $ - | |||||||||||||
Cash paid for income taxes | $ - |
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Cash paid for acquisition of subsidiary, net of cash acquired: |
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Consideration paid: |
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Cash paid, net of cash acquired |
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| $ 177,565 | ||||||||||||
Allocated to: |
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| Inventory |
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| $ 5,201 | |||||||||||
| Due from related party |
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| 10,272 | |||||||||||
| Other receivable and prepaid expenses |
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| 9,651 | |||||||||||
| Security deposit |
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| 40,960 | |||||||||||
| Property and equipment |
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| 124,834 | |||||||||||
| Accounts payable |
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| (7,561) | |||||||||||
| Accrued expenses |
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| (7,535) | |||||||||||
| Due to related party |
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| (30,817) | |||||||||||
| Stockholders loan payable to Sizegenic |
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| _(86,198) | |||||||||||
| Net tangible assets |
| $ - |
| $ 58,807 | |||||||||||
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| Value of excess of purchase price over net assets |
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| Acquired allocated to: |
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| Goodwill |
| $ - |
| $ 118,758 |
See accompanying notes to audited consolidated financial statements.
6
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 1 ORGANIZATION
Hippo Lace Limited (the Company) was incorporated on December 11, 2009 in the British Virgin Islands (BVI) with a maximum authorized share capital of 50,000 ordinary shares. On January 12, 2010, a share was issued for $1 to Mr. Gu Yao, who is the sole shareholder of the Company. The Company principally acts as an investing holding company.
In February 2010, the Company entered into and consummated an agreement with Sizegenic Holdings Limited, a BVI corporation, to acquire 100% interests of its wholly owned subsidiary, Legend Sun Limited (Legend Sun). The consideration of $182,982, pursuant to the supplementary agreement, was paid in full on February 17, 2010 (i) to acquire all of the issued and outstanding shares of Legend Sun owned by Sizegenic, and (ii) to pay off the outstanding shareholder loan owed to Sizegenic by Legend, Sun and the share transfer was completed on February 24, 2010. Legend Sun is a limited liability company incorporated and domiciled in Hong Kong and its principal activity is to provide catering services in Hong Kong.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Companys functional currency is the Hong Kong Dollar, however the accompanying consolidated financial statements have been translated and presented in United States Dollars.
(b)
Principles of Consolidation
The balance sheet as of December 31, 2010 includes the Company and its wholly-owned subsidiary, Legend Sun. Additionally, the results of operations and cash flows includes the operations for the nine months period ended December 31, 2010 of Legend Sun. All intercompany accounts and transactions have been eliminated
(c)
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Companys significant estimates include the reserves related to receivables, the recoverability and useful lives of long lived assets and realizable values for inventories.
7
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(d)
Foreign currency translation
Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period. The related transaction adjustments are reflected in Accumulated other comprehensive income / (loss) in the equity section of our consolidated balance sheet.
The period-end rates for December 31, 2010 and March 31, 2010 of Hong Kong dollar to one US dollar were 7.7810 and 7.7800 respectively; average rates for the nine months ended December 31, 2010 and for the period from December 11, 2009 to March 31, 2010 were 7.7698 and 7.7644 respectively.
(e)
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.
Depreciation expense is recorded over the assets estimated useful lives or lease period, using the straight line method, at the following annual rates:-
Furniture and equipment: 10% - 20%, per annum
Computer equipment: 10%, per annum
Leasehold improvements: over the lease term
(f)
Inventories
Inventories consist of finished goods which include food and beverage materials and products for catering service. Inventories are measured at the lower of cost or market. The cost of inventories comprises all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition and is assigned by using a first-in first-out basis. Market value is determined by reference to selling prices after the balance sheet date or to managements estimates based on prevailing market conditions. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.
8
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(g)
Accounts receivables
Accounts receivable are shown net of allowance for doubtful accounts. During the period, there were no bad debts incurred and no allowance for doubtful accounts recorded at both March 31, 2010 and December 31, 2010. The Companys management has established an allowance for doubtful accounts sufficient to cover probable and reasonably estimable losses. The allowance for doubtful accounts considers a number of factors, including collection experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable portfolios, industry norms, regulatory decisions and other factors. Management reviews the composition of accounts receivable and analyzes any historical bad debts, customer concentrations, and customer credit worthiness. Managements policy is to record a reserve primarily on a specific identification basis. Accounts are written off after use of a collection agency is deemed to be no longer useful. The accounts receivable balance as of March 31, 2010 is nil. The accounts receivable balance of $10,273 at December 31, 2010 represents the first year annual fee income from Sino Wish, the subfranchisee located in Hong Kong commenced in April 2010. After reviewing and analyzing the account receivable from Sino Wish, management believes that the company is trustworthy and no allowance is required because there was no historical bad debt, the business and the economy are in a growing trend and we are not aware of any credibility problem of the company.
(h)
Other receivable
Other receivables mainly represents amount due from Sino Wish for purchase of coffee machine on its behalf.
(i)
Cash
Cash consist of cash on hand and at banks. Substantially all of the Company's cash deposits are held with financial institutions located in Hong Kong. Management believes these financial institutions are of high credit quality.
(j)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in an acquisition. Accounting Standards Codification (ASC)-350-30-50 Goodwill and Other Intangible Assets requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter each year. Goodwill impairment is computed using the expected present value of associated future cash flows. There was no impairment of goodwill as of December 31, 2010 and March 31, 2010.
9
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(k)
Impairment of long-lived assets
Long-lived assets are comprised of property and equipment. Pursuant to the provisions of ASC360-10, Property, plant and equipment, long-lived assets to be held and used are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable by comparing the undiscounted cash flows associated with the assets to their carrying amounts. If such a review indicates an impairment, the carrying amount would be reduced to fair value.
Based on the Companys assessment, there were no events or changes in circumstances that would indicate any impairment of long-lived assets as of December 31, 2010 and March 31, 2010.
(l)
Accounts payable and accrued expenses consist of the following:
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Accounts payable |
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| $ 12,423 |
| $ 6,049 | |||
Accrued expenses |
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| Legal and professional fees | 7,256 |
| 16,000 | |||||
| Payroll and other operating expenses | 8,704 |
| 10,624 | |||||
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| $ 28,383 |
| $ 32,673 |
(m)
Fair value measurements
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
10
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(m)
Fair value measurements (Contd)
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
The carrying values of cash, accounts and other receivables, accounts payable and accrued expenses, and short-term borrowings approximate fair values due to their short maturities.
There was no asset or liability measured at fair value on a non-recurring basis as of December 31, 2010 and March 31, 2010.
(n)
Income Taxes
Income taxes are provided for using the liability method of accounting in accordance with ASC 740 Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
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 assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.
The Company adopted ASC 740 which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.
11
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(o)
Other comprehensive income
The Company has adopted ASC 220 Comprehensive Income. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments.
(p)
Revenue recognition
Revenue represents the invoiced value of goods sold or services provided. Revenue is recognized when all the following criteria are met:
a.
Persuasive evidence of an arrangement exists.
b.
Services had been rendered.
c.
The sellers price to the buyer is fixed or determinable, and
d.
Collectivity is reasonably assured.
Revenue from sales is recognized when food and beverage products are sold. Other income from consultancy services is recognized on the accrual basis i.e. when the services are rendered. Franchise fee income on the annual fee for sublicensing of the brand name and trademark Caffe Kenon and the 10% management fee on eligible monthly net income of subfranchiee are recognized after granting the non-exclusive rights and all contractual obligations are performed and report of net income from subfranchisee respectively.
(q)
Employee benefits
The Company operates a Mandatory Provident Fund Scheme (the "MPF Scheme") under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds. The Company's contributions to the scheme are expensed as incurred and are vested in accordance with the scheme' vesting scales.
(r)
Segment information
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys operating segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue and operating results of the Company. From April 2010, the Company operated in two reportable segments that include franchise to operate an owned Caffe Kenon in Hong Kong and subfranchise to operate two Caffe Kenon in Hong Kong and Beijing respectively.
12
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( /Contd)
(s)
Commitments and contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company 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, scientific evidence and the specifics of each matter.
As of December 31, 2010 and March 31, 2010, the Company's management has evaluated all such proceedings and claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, liquidity or results of operations.
(t)
Recently Issued Accounting Pronouncements
We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.
In January 2010, the FASB issued new accounting guidance, under ASC Topic 820 on Fair Value Measurements and Disclosures. The guidance requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The guidance now requires a reporting entity to use judgment in determining the appropriate classes of assets and liabilities and to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009. As this standard relates specifically to disclosures, the adoption did not have a material impact on the Companys condensed consolidated financial statements.
In February 2010, the FASB issued new accounting guidance, under ASC Topic 855 on Subsequent Events, which requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirements that an SEC filer disclose the date through which subsequent events have been evaluated. The guidance was effective upon issuance. The adoption of the guidance did not have a material impact on the Companys condensed consolidated financial statements.
13
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 3 BUSINESS ACQUISITION
In February 2010, the Company entered into a sale and purchase agreement with Sizegenic Holdings Limited, a BVI corporation, to acquire its wholly owned subsidiary, (Legend Sun). Pursuant to the sale and purchase agreement, the Company agreed to pay total consideration of $182,982 (approximate HK$1,425,024) in exchange for 100% ownership of Legend Sun. Legend Sun is a Hong Kong company and it principally engages in provision of catering services in Hong Kong. Pursuant to a Supplementary Agreement to the sale and purchase agreement, the consideration of 182,982 was paid (i) to acquire all of the issued and outstanding shares of Legend Sun owned by Sizegenic, and (ii) to pay off the outstanding shareholder loan owed to Sizegenic by Legend Sun. Cheung Ming is the sole shareholder of Sizegenic. There was no relationship between Gu Yao and Sizegenic or Cheung Ming prior to the sale of Legend Sun. The fair values of the assets acquired and liabilities assumed at the date of acquisition as determined in accordance with ASC 805, and the purchase price allocation at the date of acquisition, were as follows:
Consideration paid: |
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Cash paid |
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| $ 182,982 | ||
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Cash acquired |
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| (5,417) | ||
Cash paid, net of cash acquired |
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| $ 177,565 | ||
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Allocated to: |
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| Inventory |
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| $ 5,201 | ||
| Due from related party |
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| 10,272 | ||
| Other receivable and prepaid expenses |
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| 9,651 | ||
| Security deposit |
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| 40,960 | ||
| Property and equipment |
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| 124,834 | ||
| Accounts payable |
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| (7,561) | ||
| Accrued expenses |
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|
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| (7,535) | ||
| Due to related party |
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| (30,817) | ||
| Stockholders loan payable to Sizegenic |
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| (86,198) | ||
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| Net tangible assets |
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| $ 58,807 |
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Value of excess of purchase price over net assets |
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| Acquired allocated to: |
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| Goodwill |
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| $ 118.758 |
14
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 4 INVENTORIES
Inventories are stated at lower of cost or market. Inventories represent finished goods include food and beverage materials and products for catering services.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment of the Company consist primarily of restaurant facilities and equipment owned and operated by the Company's wholly owned subsidiaries. Property and equipment as of December 31, 2010 and March 31, 2010 are summarized as follows:
| December 31,2010 |
| March 31, 2010 |
Furniture & equipment | $ 51,835 |
| $ 46,956 |
Leasehold improvement | 86,001 |
| 86,001 |
Computer equipment | 7,066 |
| 7,066 |
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Total | 144,902 |
| 140,023 |
Accumulated depreciation and amortization | (33,338) |
| (15,234) |
Balance as at period ended | $ 111,564 |
| $ 124,789 |
Depreciation and amortization expense for the nine months period ended December 31, 2010 and for the period from inception to March 31, 2010 were $18,104 and $4,241, respectively.
NOTE 6 SECURITY DEPOSITS
Security deposits mainly consist of five months rental and management fee security deposits, electricity and water meter deposits for company owned restaurant, and was recorded by the time of payment. Security and deposits as of December 31, 2010 and March 31, 2010 are summarized as follows:
| As of December 31,2010 |
| As of March 31, 2010 |
Rental and management fee security deposit | $ 35,888 |
| $ 35,888 |
Electricity deposit | 3,595 |
| 3,595 |
Water deposit | 771 |
| 771 |
Food supplies deposit | 962 |
| 706 |
Other deposit | - |
| 117 |
| $ 41,216 |
| $ 41,077 |
15
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 7 COST OF GOODS SOLD
Cost of goods sold consists of finished goods including food and beverage materials and products for catering services sold by the company-owned restaurant and the subfranchise annual fee expenses and exclusive of depreciation expenses which are shown separately under Note 8 Operating Expenses.
NOTE 8 OPERATING EXPENSES
Operating expenses consist of the following for the nine months period ended December 31, 2010 and December 11, 2009 (inception) through March 31, 2010:
| Nine months ended December 31, 2010 |
| December 11, 2009 (Inception) through March 31, 2010 |
Staff costs | $ 60,393 |
| $ 11,059 |
Property rent, rate and management fee | 68,874 |
| 9,409 |
Electricity and utilities | 15,861 |
| 1,879 |
Depreciation | 18,104 |
| 45 |
Professional and audit fee | 4,156 |
| 16,000 |
Others | 19,445 |
| 13,141 |
Total | $ 186,833 |
| $ 51,533 |
NOTE 9 FRANCHISE ARRANGEMENTS
Franchise arrangements include payment of franchise fee payable on anniversary basis and continuing monthly management fee base upon a percent of franchisees net profit after tax to the Company throughout the term of franchise. Under this arrangement, two franchise agreements are entered in March and April 2010 respectively in which franchisees are granted the right to operate a café bistro using the brand name Caffe Kenon for a term of 3 years. Franchise fee income on the sublicensing of the brand name and trademark Caffe Kenon is recognized upon the granting of the non-exclusive rights to the franchisee as the fee is non-refundable to and non-cancellable by the franchisee and the Company has no further obligations since they are all assumed by franchisee throughout the term. The franchisees pay related occupancy costs including rent, property management fee and government rent and rates, insurance and maintenance. Franchisor has no obligation to any legal consequences arose from what the franchisee assumed.
The franchisee has the right to renew for one additional term equal to the initial term granted under Franchisors franchise agreement after expiration of the initial term provided that franchisee has, during the term of the agreement, substantially complied with all its provisions. Franchisee must pay Franchisor, three months prior to the date of renewal, a renewal fee to be agreed between Franchisee and Franchisor.
16
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 9 FRANCHISE ARRANGEMENTS ( /Contd)
Revenues from franchised Caffe Kenon are as follows:
| Nine months ended December 31, 2010 |
| December 11, 2009 (Inception) through March 31, 2010 |
Franchise fee income: |
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|
Sino Wish | $ 10,272 |
| $ - |
Beijing Kenon | 11,880 |
| - |
| $ 22,152 |
| $ - |
Future minimum franchise fee payments due from the Company under existing franchise and subfranchise arrangements are:
Year ended March 31, |
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|
2011 |
| $20,544 |
2012 |
| 20,544 |
2013 |
| 5,136 |
Total |
| $46,224 |
Future minimum franchise fee payments due to the Company under existing franchise and subfranchise arrangements are:
Year ended March 31, |
|
|
2011 |
| $22,152 |
2012 |
| 16,472 |
2013 |
| 10,272 |
Total |
| $48,896 |
Franchise fees owed to Sizegenic consist of franchise and subfranchise annual fees and monthly franchise management fees applicable to profit after tax of the Company-owned restaurant. For the nine months ended December 31, 2010, the subfranchise annual fee expenses owed to Sizegenic totaling $10,272 for Hong Kong and Beijing, partially offset the annual fees totaling $22,152 owed by our subfranchisees in HK and Beijing.
The first year franchise annual fee of $5,136, owed to Sizegenic for the Company-owned restaurant, was after a special 50% discount for the first year. The full amount of the annual fee of $10,272 is due per annum beginning in the second year and throughout the remaining term of the agreement.
17
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 10 SEGMENT INFORMATION
From April 2010, the Company operated in two reportable segments that include franchise to operate an owned Caffe Kenon in Hong Kong and subfranchise to operate two Caffe Kenon in Hong Kong and Beijing respectively.
Each reportable segment is separately organized and focuses on different customer groups of consumers and subfranchisees. Each reportable segment prepares a stand-alone set of financial reporting package including information such as revenue, expenses, and goodwill, and the package is regularly reviewed by the Chief Executive Officer.
The following is a summary of relevant information relating to each segment reconciled to amounts on the accompanying consolidated financial statements for the nine months ended December 31, 2010:
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| Franchise | Subfranchise | Total |
Revenue |
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| $ 252,399 | $ 22,266 | $ 274,665 |
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Depreciation and amortization |
| 18,104 | - | 18,104 | ||
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Cost of revenues and operating expense |
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excluding depreciation and amortization |
| 240,226 | 11,593 | 251,819 | ||
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Operating income/(loss) |
| (5,931) | 10,673 | 4,742 | ||
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Other income |
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| 3,473 | - | 3,473 | |
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Other expenses |
| 770 | - | 770 | ||
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Total other income, net |
| 2,703 | - | 2,703 | ||
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Income tax expenses |
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| 482 | 3,330 | 3,812 | |
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Net (loss)/income after tax |
| (3,710) | 7,343 | 3,633 | ||
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Total assets, excluding goodwill |
| 197,339 | 11,994 | 209,333 | ||
Goodwill |
| 32,560 | - | 32,560 | ||
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Capital expenditure |
| 4,879 | - | 4,879 |
18
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 10 SEGMENT INFORMATION ( /Contd)
The following shows the Companys revenue in the two cities in the PRC:
|
| Hong Kong | Beijing | Total |
Revenue |
| 262,785 | 11,880 | 274,665 |
All the long-lived assets of the Company are located in Hong Kong of PRC.
NOTE 11 INCOME TAX
All of the Companys income tax is generated in Hong Kong.
A reconciliation of the expected income tax expense to the actual income tax expense is as follows:
| Nine months ended December 31, 2010 |
| December 11, 2009 Inception through March 31, 2010 |
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Income before tax | $ 7,445 |
| $ 15,151 |
HK income tax rate | 16.5% |
| 16.5% |
Expected income tax expenses calculated at |
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HK income tax rate | 1,228 |
| 2,500 |
Temporary difference unrecognised | 2,584 |
| (79) |
Actual income tax expense | $ 3,812 |
| $ 2,421 |
The Company's income tax provision in respect of operations in Hong Kong is calculated at the applicable tax rates on the estimated assessable profits for the year based on existing legislation, interpretations and practices in respect thereof. The standard tax rate applicable to the Company was 16.5%. The unrecognized temporary difference of $2,584 for the nine months ended December 31, 2010 represents the difference between depreciation expenses and depreciation tax allowance for the plant and equipment. No deferred tax liability has been provided as the amount involved is immaterial.
NOTE 12 OPERATING LEASE COMMITMENTS
The Company entered into a rent agreement on June 1, 2009 to lease premises for operation of our Company-owned restaurant for a term of 5 years at a monthly rental rate of $6,667 for the first three years and $8,333 for the last two years.
A of March 31, 2010, the total future minimum lease payments under non-cancellable operating lease in respect of leased premises are payable as follows:-
Year ended March 31, |
|
|
2011 |
| $ 46,302 |
2012 |
| 92,602 |
2013 |
| 15,433 |
Total |
| $ 154,337 |
19
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 13 RELATED PARTY TRANSACTIONS
Balance with related party
| December 31, 2010 |
| March 31, 2010 |
Stockholders loan: |
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- Gu Yao, stockholder | $ 184,226 |
| $ 196,266 |
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Amount (paid to)/received from stockholder for the period | $ (12,040) |
| $ 196,266 |
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Due from related party: | $ 12,985 |
| $ - |
- Beijing Kenon Bistro Catering Limited (BJ Kenon) (Under common control of Gu Yao) |
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Amount charged to BJ Kenon for the period | $ 11,880 |
| $ - |
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Due from Joystick Limited (Joystick) | $ - |
| $ 30,817 |
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Amount charged to Joystick for the period | $ - |
| $ 51,362 |
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Due to related party: | $ 6,687 |
| $ 8,812 |
- Sizegenic Holdings Limited (Sizegenic) (Common stockholder of Sizegenic and Studio II, Cheung Ming) |
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Amount charged by Sizegenic for the period | $ 15,049 |
| $ 8,812 |
The stockholders loan mainly represents the loan advance to the Company by Gu Yao for acquisition of the wholly own subsidiary on February 24, 2010, Legend Sun. This loan agreement was entered by the Company and Gu Yao on December 11, 2009 for a term of 2 years. This loan is unsecured, non-interest bearing and repayable after one year on December 11, 2011.
The Company had amounts charged to and by related parties. The amount charged to BJ Kenon represents the first year annual franchise fee income pursuant to the franchise agreement for a term of 3 years entered on April 1, 2010.
The amount due from Joystick represents the monthly fee at $10,272 for consultancy services to Joystick to operate a Portugal café bristro for January to March 2010. It has been offset with amount due to Sizegenic as of December 31, 2010 through agreement with Sizegenic.
The amount charged to Joystick represents the consultancy services fee for February to March 2010 and the forfeited consultancy service deposit due to termination of agreement before expiration of the term.
20
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 13 RELATED PARTY TRANSACTIONS ( /Contd)
The amount charged by Sizegenic for the period from December 11, 2009 to March 31, 2010 and nine months ended December 31, 2010 mainly represents the respective franchise annual fee after 50% discount and subfranchise annual fee for the first year pursuant to the related franchise agreements in place.
NOTE 14 CERTAIN RISK AND CONCENTRATION
Credit risk
As of December 31, 2010 and March 31, 2010, substantially all of the Companys cash included bank deposits in accounts maintained within Hong Kong, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
There were no significant customers or vendors which accounts for 10% or more of the Companys revenues or purchases during the periods presented.
NOTE 15 SUBSEQUENT EVENT
We evaluated subsequent events through the issuance date of our financial statements. On February 10, 2011, the Company and the sole shareholder Mr. Gu Yao (Gu) entered into Share Exchange Agreement and Supplementary Agreement with Studio II Brands, INC. (Studio II), a Florida corporation whereby Studio II agreed to issue 2,291,100 shares of the common stock to Gu to (i) acquire all of the issued and outstanding shares of common stock of the Company, and (ii) pay off the outstanding stockholders loan owed to Mr. Gu Yao by the Company. Upon consummation of the transaction, Studio II would become the holding entity of the Company. The exchange transaction was a private placement transaction, and the shares issued in the exchange transaction were not registered under the Securities Act of 1933, in reliance upon exemptions from registration provided by Section 4(2) of the Securities Act and by Regulation S promulgated under the Securities Act. Accordingly, all shares issued in the exchange transaction will constitute restricted securities as defined in Rule 144 under the Securities Act of 1933.
21
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 16 RESTATED FINANCIAL STATEMENTS
On August 1, 2011, the Board of Directors of the Company concluded, based upon the recommendation of management to respond to SEC comments issued on June 17, 2011 regarding principle of consolidation of Legend Sun by HLL on the acquisition date of February 24, 2010, and inclusion of financial statements of Legend Sun (predecessor to Hippo Lace) for April 1, 2009 through February 23, 2010 and Hippo Lace (successor) for the period from February 24, 2010 through March 31, 2010 in bifurcated format in the Form 10-K for year ended March 31, 2011, and On February 15, 2012, the Board of Directors of the Company concluded, based upon the recommendation of management to respond to SEC comments issued on February 9, 2012 regarding the determination of goodwill in the purchase price allocation for Legend Suns net asset value acquired on February 24, 2010 that the previously issued consolidated financial statements for HLL and its subsidiary Legend Sun as of
December 31, 2010 and for the nine months ended December 31, 2010 in the exhibit 99.2 of Form 8-KA filed on May 13, 2011 should no longer be relied upon.
The misstatements in the previously issued financial statements are mainly attributed to the fact that we included consolidation of the financial results of Legend Sun for periods prior to the date of its acquisition by the Company on February 24, 2010, and deducted the payoff of stockholders loan owed by Legend Sun to Sizegenic from the consideration to acquire Legend Sun in the purchase price allocation. The result of such restatement indicates understated net income ($459) for the period from December 11, 2009 (Inception) to March 31, 2010, goodwill ($86,657) and additional paid-in capital ($86,198) as of March 31, 2010.
The reconciliations of the restated financial statements to the original version with disclosure of nature and material type of error are as follows:
December 31, 2010 restatement
Consolidated balance sheet as of December 31, 2010
The restated goodwill was substantially attributed to the additional paid-up capital as a result to add back the $86,198 payoff of stockholders loan owed by Legend Sun to Sizegenic deducted from the consideration to acquire Legend Sun in the purchase price allocation. The remainder of restated goodwill was attributed to the increased retained earnings by $459 mainly as a result of increased net income due to a lower consolidated operating loss net of decreased other income because the consolidation period for financial results was changed to include only the period from February 24, 2010 (date the Company acquired Legend Sun) to March 31, 2010 instead of the period from January 1, 2010 to March 31, 2010.
22
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NOTE 16 RESTATED FINANCIAL STATEMENTS ( /Contd)
Consolidated statement of income and comprehensive income for the nine months ended December 31, 2010
No change between the original and restated statement of income.
Consolidated statement of stockholders equity for the nine months ended December 31, 2010
Changes are the result of the increase of additional paid-in capital of $86,198 and the increase of retained earnings of $459 as explained above under consolidated balance sheet
Consolidated statement of cash flows for the nine months ended December 31, 2010
Amount due from Joystick is classified from other receivable to due from related party and other payable is classified to accounts payable.
The proceeds from stockholders loan were grouped under financing activities on the original statement. But the loan is repayable within one year in December 2011, and as a result was reclassified as changes in operating liabilities in the restated statement.
23
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
CONSOLIDATED BALANCE SHEET | |||
| As of December 31, 2010 | ||
| Original | Adjustment | Restated |
ASSETS |
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|
|
Goodwill | 32,101 | 86,657 | 118,758 |
TOTAL ASSETS | 241,434 | 86,657 | 328,091 |
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LIABILITIES AND STOCKHOLDER'S EQUITY |
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|
|
CURRENT LIABILITIES |
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Stockholder's loan | - | 184,226 | 184,226 |
TOTAL CURRENT LIABILITIES | 41,303 | 184,226 | 225,529 |
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Stockholder's loan | 184,226 | (184,226) | - |
TOTAL LIABILITIES | 225,529 | - | 225,529 |
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STOCKHOLDER'S EQUITY |
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Additional paid-in capital | - | 86,198 | 86,198 |
Retained earnings | 5,904 | 459 | 16,363 |
TOTAL STOCKHOLDER'S EQUITY | 5,905 | 86,657 | 102,562 |
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|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | 241,434 | 86,657 | 328,091 |
24
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY | |||||||||
For the nine months ended December 31, 2010 | |||||||||
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Original |
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| Additional |
| Total | |
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| Common stock | paid-up | Retained | stockholder's | ||
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| Number | Amount | capital | earnings | equity | |
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| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | ||||
Common stock issued for cash | 1 | 1 | - | - | 1 | ||||
Net income for the period | - | - | - | 12,271 | 12,271 | ||||
Balance as of March 31, 2010 | 1 | 1 | - | 12,271 | 12,272 | ||||
Net income for the period | - | - | - | 3,633 | 3,633 | ||||
Balance as of December 31, 2010 | 1 | 1 | - | 15,904 | 15,905 | ||||
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Adjustment |
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| Additional |
| Total | |
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| Common stock | paid-up | Retained | stockholder's | ||
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| Number | Amount | capital | earnings | equity | |
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| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | ||||
Common stock issued for cash | - | - | - | - | - | ||||
Acquisition of Legend Sun | - | - | 6,198 | - | 86,198 | ||||
Net income for the period | - | - | - | 459 | 459 | ||||
Balance as of March 31, 2010 | - | - | 86,198 | 459 | 86,657 | ||||
Net income for the period | - | - | - | - | - | ||||
Balance as of December 31, 2010 | - | - | 86,198 | 459 | 86,657 |
25
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
Restated |
| ||||||||
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| Common stock | Additional paid-in | Retained | Total stockholder's | ||
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| Number | Amount | capital | earnings | Equity | |
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| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | ||||
Common stock issued for cash | 1 | 1 | - | - | 1 | ||||
Acquisition of Legend Sun | - | - | 86,198 | - | 86,198 | ||||
Net income for the period | - | - | - | 12,730 | 12,730 | ||||
Balance as of March 31, 2010 | 1 | 1 | 86,198 | 12,730 | 98,929 | ||||
Net income for the period | - | - | - | 3,633 | 3,633 | ||||
Balance as of December 31, 2010 | 1 | 1 | 86,198 | 16,363 | 102,562 |
26
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
CONSOLIDATED STATEMENT OF CASH FLOWS | |||
For the nine months ended December 31, 2010 | |||
| Original | Adjustment | Restated |
CASH FLOWS FROM OPERATING ACTIVITIES Changes in operating assets and liabilities |
|
|
|
Due from related party | (12,985) | 30,817 | 17,832 |
Other receivable | 30,656 | (30,817) | (161) |
Accounts payable and accrued expenses | 6,374 | (10,664) | (4,290) |
Stockholders loan | - | 184,266 | 184,226 |
Other payable | (10,664) | 10,664 | - |
NET CASH USED IN OPERATING ACTIVITIES | 26,966 | 184,226 | 211,192 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from stockholder's loan | (12,040) | (184,226) | (196,266) |
NET CASH PROVIDED BY FINANCING ACTIVITIES | (12,040) | (184,226) | (196,266) |
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NET INCREASE IN CASH | 10,047 | - | 10,047 |
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CASH |
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|
Beginning of period | 15,322 | - | 15,322 |
End of period | 25,369 | - | 25,369 |
27
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
March 31, 2010 restatement
Consolidated balance sheet as of March 31, 2010
The restated goodwill was substantially attributed to the additional paid-up capital as a result to add back the $86,198 payoff of stockholders loan owed by Legend Sun to Sizegenic deducted from the consideration to acquire Legend Sun in the purchase price allocation. The remainder of restated goodwill was attributed to the increased retained earnings by $459 mainly as a result of increased net income due to a lower consolidated operating loss net of decreased other income because the consolidation period for financial results was changed to include only the period from February 24, 2010 (date the Company acquired Legend Sun) to March 31, 2010 instead of the period from January 1, 2010 to March 31, 2010.
Other receivable for consultancy services income for January to March 2010 from Joystick, wholly owned subsidiary of Sizegenic, reclassified and reported as related party transaction.
Consolidated statement of income and comprehensive income for the period from December 11, 2009 (inception) to March 31, 2010
The increased net income mainly attributed to the lower operating loss and substantially offset by loss of other income, net consisted of consultancy fee income for January and first year franchise annual fee expenses due to the change of consolidation period.
Consolidated statement of stockholders equity for the period from December 11, 2009 (inception) to March 31, 2010
Changes are the result of the increase of additional paid-in capital amounting to $86,198 and the increase of retained earnings amounting to $459 as explained above under the consolidated balance sheet.
Consolidated statement of cash flows for the period from December 11, 2009 (inception) to March 31, 2010
The change of the consolidation period to date of acquisition resulted cash flow movements of operating and investing assets and liabilities as indicated in the statement. The restated goodwill represents the add back of the payoff of stockholders loan deducted from the consideration and the movement of the acquired assets and liabilities in the purchase price allocation caused by the change of consolidation period.
28
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
| CONSOLIDATED BALANCE SHEET | ||||||||||||
|
| As of March 31,2010 | |||||||||||
|
| Original | Adjustment | Restated | |||||||||
ASSETS |
|
|
|
| |||||||||
CURRENT ASSETS |
|
|
|
| |||||||||
Due from related party | $ - | $30,817 | $30,817 | ||||||||||
Other receivable | 36,551 | (30,817) | 5,734 | ||||||||||
|
|
|
| ||||||||||
Goodwill | 32,101 | 86,657 | 118,758 | ||||||||||
|
|
|
|
| |||||||||
TOTAL ASSETS |
| 252,444 | 86,657 | 339,101 | |||||||||
|
|
|
|
| |||||||||
STOCKHOLDER'S EQUITY |
|
|
|
| |||||||||
Additional paid-in capital | - | 86,198 | 86,198 | ||||||||||
Retained earnings | __12,271 | 459 | 12,730 | ||||||||||
TOTAL STOCKHOLDER'S EQUITY |
| 12,272 | 86,657 | 98,929 | |||||||||
|
|
|
|
|
|
|
| ||||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ 252,444 | $ 86,657 | $ 339,101 |
29
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME | ||||||
For the period from December 11, 2009 (Date of inception) to March 31, 2010 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Original | Adjustment | Restated |
Revenue |
|
|
| $ 56,930 | $ (32,600) | $ 24,330 |
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation) |
|
| (18,864) | 9,856 | (9,008) | |
|
|
|
|
|
|
|
Gross profit |
|
| 38,066 | (22,744) | 15,322 | |
|
|
|
|
|
|
|
Operating expenses |
|
| (79,873) | 28,340 | (51,533) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS BEFORE INCOME TAXES |
|
| (41,807) | 5,596 | (36,211) | |
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSES) |
|
|
| |||
Other income |
|
| 61,635 | (10,273) | 51,362 | |
Other expenses |
|
| (5,136) | 5,136 | - | |
TOTAL OTHER INCOME, NET | 56,499 | (5,137) | 51,362 | |||
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES | 14,692 | 459 | 15,151 | |||
|
|
|
|
|
|
|
INCOME TAXES EXPENSES | (2,421) | - | (2,421) | |||
|
|
|
|
|
|
|
NET INCOME |
|
| $ 12,271 | $ 459 | $ 12,730 | |
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
| ||
Basic and fully diluted |
| $ 12,271 | $ 459 | $ 12,730 | ||
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
|
|
| |||
OUTSTANDING | 1 | - | 1 | |||
|
|
|
|
|
|
|
30
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
| CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY | |||||||
| FOR THE PERIOD FROM DECEMBER 11, 2009 (DATE OF INCEPTION) TO MARCH 31, 2010 | |||||||
|
|
|
|
|
|
|
| |
Original |
|
|
|
|
|
|
| |
|
|
|
|
| Additional |
| Total | |
|
|
| Common stock | paid-in | Retained | stockholder's | ||
|
|
| Number | Amount | capital | earnings | equity | |
|
|
|
|
|
|
|
| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | |||
Common stock issued for cash |
| 1 | 1 | - | - | 1 | ||
Net income for the period |
| - | - | - | 12,271 | 12,271 | ||
Balance as of March 31, 2010 |
| 1 | 1 | - | 12,271 | 12,272 | ||
|
|
|
|
|
|
|
| |
Adjustment |
|
|
|
|
|
|
| |
|
|
|
|
| Additional |
| Total | |
|
|
| Common stock | paid-in | Retained | stockholder's | ||
|
|
| Number | Amount | capital | earnings | equity | |
|
|
|
|
|
|
|
| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | |||
Common stock issued for cash |
| - | - | - | - | - | ||
Acquisition of Legend Sun |
| - | - | 86,198 | - | 86,198 | ||
Net income for the period |
| - | - | - | 459 | 459 | ||
Balance as of March 31, 2010 |
| - | - | 86,198 | 459 | 86,657 | ||
|
|
|
|
|
|
|
| |
Restated |
|
|
|
| Additional |
| Total | |
|
|
| Common stock | paid-in | Retained | stockholder's | ||
|
|
| Number | Amount | capital | earnings | Equity | |
|
|
|
|
|
|
|
| |
Balance at December 11, 2009 (date of inception) | - | - | - | - | - | |||
Common stock issued for cash |
| 1 | 1 | - | - | 1 | ||
Acquisition of Legend Sun |
| - | - | 86,198 | - | 86,198 | ||
Net income for the period |
| - | - | - | 12,730 | 12,730 | ||
Balance as of March 31, 2010 |
| 1 | 1 | 86,198 | 12,730 | 98,929 | ||
|
|
|
|
|
|
|
|
31
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
CONSOLIDATED STATEMENT OF CASH FLOWS | |||||||||
For the period from December 11, 2009 (Date of inception) to March 31, 2010 | |||||||||
|
|
|
| ||||||
| Original | Adjustment | Restated | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
| ||||||
Net income | $ 12,271 | $ 459 | $ 12,730 | ||||||
Adjustments to reconcile net income to net cash |
|
|
| ||||||
used in operating activities: |
|
|
| ||||||
Depreciation | 4,241 | (4,196) | 45 | ||||||
Changes in operating assets and liabilities: |
|
|
| ||||||
Due from related party | - | (20,545) | (20,545) | ||||||
Other receivable |
| (36,304) | 30,887 | (5,417) | |||||
Inventories |
| 1,545 | 1,052 | 2,597 | |||||
Security deposit |
| 3,488 | 5,730 | 9,218 | |||||
Accounts payable |
| 1,085 | 16,491 | 17,576 | |||||
Income tax payable |
| 2,421 | - | 2,421 | |||||
Due to related party |
| 7,528 | 1,284 | 8,812 | |||||
Other payable |
| (11,054) | 11,054 | - | |||||
Deposit received |
| - | (30,817) | (30,817) | |||||
NET CASH USED IN OPERATING ACTIVITIES |
| (14,779) | 11,399 | (3,380) | |||||
|
|
|
| ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
| |||||
Cash paid for acquisition of subsidiary, net of cash acquired | (162,511) | (15,054) | (177,565) | ||||||
Purchase of property and equipment |
|
| (3,655) | 3,655 | - | ||||
NET CASH USED IN INVESTING ACTIVITIES |
| (166,166) | (11,399) | (177,565) | |||||
|
|
|
|
|
|
|
|
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
| |||||
Proceeds from stockholder's loan |
|
| 196,266 | - | 196,266 | ||||
Cash received from issuance of common stock |
| 1 | - | 1 | |||||
|
|
|
|
|
|
|
|
| |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 196,267 | - | 196,267 |
32
HIPPO LACE LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 (RESTATED)
NET INCREASE IN CASH |
|
|
| 15,322 | - | 15,322 | ||
|
|
|
|
|
|
|
|
|
CASH |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
| - | - | - | ||
End of period |
|
|
|
| $ 15,322 | $ - | $ 15,322 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisition of subsidiary, net of cash acquired: |
|
|
| |||||
|
|
|
|
|
|
|
|
|
Consideration paid: |
|
|
|
|
|
|
| |
Cash paid, net of cash acquired |
|
|
| $ 162,511 | $ 15,054 | $ 177,565 | ||
|
|
|
|
|
|
|
|
|
Allocated to: |
|
|
|
|
|
|
| |
| Inventory |
|
|
|
| 4,148 | 1,053 | 5,201 |
| Due from related party |
|
| - | 10,272 | 10,272 | ||
| Other receivable and prepaid expenses |
| - | 9,651 | 9,651 | |||
| Security deposit |
|
|
| 44,811 | (3,851) | 40,960 | |
| Property and equipment |
|
| 125,375 | (541) | 124,834 | ||
| Accounts payable |
|
|
| (4,963) | (2,598) | (7,561) | |
| Accrued expenses |
|
|
| (8,144) | 609 | (7,535) | |
| Due to related party |
|
|
| (30,817) | - | (30,817) | |
| Stockholders loan payable to Sizegenic |
|
|
| - | (86,198) | (86,198) | |
|
|
|
|
|
| 130,410 | (71,603) | 58,807 |
Value of excess of purchase price over net assets |
|
|
|
| ||||
| Acquired allocated to: |
|
|
|
|
| ||
|
| Goodwill |
|
|
| $ 32,101 | $ 86,657 | $ 118,758 |
33