Attached files
file | filename |
---|---|
8-K/A - FORM 8-K/A - Quality Online Education Group Inc. | adgs_8ka.htm |
EX-99.2 - CONSOLIDATED FINANCIAL STATEMENTS - Quality Online Education Group Inc. | adgs_ex992.htm |
EX-99.1 - CONSOLIDATED FINANCIAL STATEMENTS - Quality Online Education Group Inc. | adgs_ex991.htm |
EXHIBIT 99.3
ALMONDS KISSES LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED FEBRUARY 28, 2013 (UNAUDITED)
ALMONDS KISSES LIMITED
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
|
Pages
|
|||
Condensed Consolidated Balance Sheets at February 28, 2013 (Unaudited) and August 31, 2012
|
1 | |||
Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2013 and February 29, 2012 (Unaudited)
|
2 | |||
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended February 28, 2013 and February 29, 2012 (Unaudited)
|
3 | |||
Condensed Consolidated Statements of Changes in Stockholders’ Equity for Six Months Ended February 28, 2013 and February 29, 2012 (Unaudited)
|
4 | |||
Condensed Consolidated Statements of Cash Flows for Six Months Ended February 28, 2013 and February 29, 2012 (Unaudited)
|
5 | |||
Notes to the Condensed Consolidated Financial Statements (Unaudited)
|
6 - 20 |
ALMONDS KISSES LIMITED
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(IN US DOLLARS)
|
February 28,
2013
|
August 31,
2012
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash
|
$ | 345,316 | $ | 129,001 | ||||
Account receivable
|
123,304 | - | ||||||
Bank fixed deposit
|
128,220 | - | ||||||
Prepaid expenses
|
70,454 | 18,518 | ||||||
Advance to stockholders
|
1,889,386 | 241,036 | ||||||
Total current assets
|
2,556,680 | 388,555 | ||||||
Non-current assets
|
||||||||
Utility and other deposits
|
35,021 | 36,299 | ||||||
Property and equipment, net
|
211,483 | 93,350 | ||||||
Intangible assets
|
884,720 | 974,359 | ||||||
Equity-method investment
|
374,270 | 379,693 | ||||||
Total non-current assets
|
1,505,494 | 1,483,701 | ||||||
Total assets
|
$ | 4,062,174 | $ | 1,872,256 | ||||
Liabilities and stockholders' equity
|
||||||||
Current liabilities
|
||||||||
Bank overdrafts and loans - current portion
|
$ | 1,371,383 | $ | 919,392 | ||||
Assets held under capital lease
|
4,909 | 9,615 | ||||||
Accrued liabilities
|
151,114 | 25,937 | ||||||
Income tax payable
|
42,988 | - | ||||||
Temporary receipts
|
2,596 | - | ||||||
Total current liabilities
|
1,572,990 | 954,944 | ||||||
Non-current liabilities
|
||||||||
Bank loans - net of current portion
|
2,789,947 | 1,605,593 | ||||||
Assets held under capital lease, net of current portion
|
46,140 | 4,984 | ||||||
Total non-current liabilities
|
2,836,087 | 1,610,577 | ||||||
Total liabilities
|
4,409,077 | 2,565,521 | ||||||
Commitments and contingencies Stockholders' equity
|
||||||||
Common stock,
|
||||||||
Common stock, 50,000 shares authorized with US$1.00 par value;
|
||||||||
50,000 and 50,000 shares issued,
|
||||||||
50,000 and 50,000 shares outstanding as of
|
||||||||
February 28, 2013 and August 31, 2012, respectively
|
50,000 | 50,000 | ||||||
Subscription receivable
|
(50,000 | ) | (50,000 | ) | ||||
Accumulated deficit
|
(221,935 | ) | (579,757 | ) | ||||
Accumulated other comprehensive (loss)/income
|
(84 | ) | 31 | |||||
Total Almonds Kisses stockholders' equity
|
(222,019 | ) | (579,726 | ) | ||||
Non-controlling interest
|
(124,884 | ) | (113,539 | ) | ||||
Total liabilities and stockholders' equity
|
$ | 4,062,174 | $ | 1,872,256 |
See notes to condensed consolidated financial statements. (Unaudited)
1
ALMONDS KISSES LIMITED
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
(IN US DOLLARS)
|
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
February,
|
February,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenue
|
$ | 1,296,035 | $ | 244,258 | $ | 1,905,634 | $ | 427,820 | ||||||||
Less: Operating expenses:
|
||||||||||||||||
Direct cost of revenue
|
(603,608 | ) | (207,072 | ) | (967,039 | ) | (287,068 | ) | ||||||||
General and administrative expenses
|
(275,946 | ) | (145,142 | ) | (486,355 | ) | (277,231 | ) | ||||||||
Total operating expenses
|
(879,554 | ) | (352,214 | ) | (1,453,394 | ) | (564,299 | ) | ||||||||
Operating income/(loss)
|
416,481 | (107,956 | ) | 452,240 | (136,479 | ) | ||||||||||
Other expense:
|
||||||||||||||||
Interest expenses
|
(33,348 | ) | (3,450 | ) | (62,775 | ) | (4,826 | ) | ||||||||
Profit/(loss) before income taxes
|
383,133 | (111,406 | ) | 389,465 | (141,305 | ) | ||||||||||
Less: Income tax expense
|
(42,988 | ) | - | (42,988 | ) | - | ||||||||||
Net profit/(loss) before allocation of non-controlling interest
|
$ | 340,145 | $ | (111,406 | ) | $ | 346,477 | $ | (141,305 | ) | ||||||
Net loss attributable to non-controlling interest
|
5,674 | 5,671 | 11,345 | 11,342 | ||||||||||||
Net income/(loss) attributable to common stockholders
|
$ | 345,819 | $ | (105,735 | ) | $ | 357,822 | $ | (129,963 | ) | ||||||
Earnings/(Loss) per share
|
||||||||||||||||
- Basic and diluted
|
$ | 6.92 | $ | (2.11 | ) | $ | 7.16 | $ | (2.60 | ) | ||||||
Weighted average common shares outstanding
|
||||||||||||||||
- Basic and diluted
|
50,000 | 50,000 | 50,000 | 50,000 |
See notes to condensed consolidated financial statements. (Unaudited)
2
ALMONDS KISSES LIMITED
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
( IN US DOLLARS)
|
For the Three Months Ended
February,
|
For the Six Months Ended
February,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Net income/(loss)
|
$ | 340,145 | $ | (111,406 | ) | $ | 346,477 | $ | (141,305 | ) | ||||||
Other comprehensive expense
|
||||||||||||||||
Foreign currency translation adjustment
|
(67 | ) | - | (115 | ) | - | ||||||||||
Comprehensive income/(loss)
|
340,078 | (111,406 | ) | 346,362 | (141,305 | ) | ||||||||||
Add: Comprehensive loss attributable to non-controlling interests
|
5,674 | 5,671 | 11,345 | 11,342 | ||||||||||||
Comprehensive income/(loss) attributable to Almonds Kisses
|
$ | 345,752 | $ | (105,735 | ) | $ | 357,707 | $ | (129,963 | ) |
See notes to condensed consolidated financial statements. (Unaudited)
3
ALMONDS KISSES LIMITED
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
|
(IN US DOLLARS)
|
Common Stock, with US$1.00
Par Value
|
Accumulated Other
|
|||||||||||||||||||||||||||
Number of
|
Subscription
|
Comprehensive
|
Accumulated
|
Non-controlling
|
Total
|
|||||||||||||||||||||||
Shares
|
Amount
|
receivable
|
(loss)/income
|
Losses
|
Interest
|
Equity
|
||||||||||||||||||||||
Balance as of August 31, 2012
|
50,000 | $ | 50,000 | $ | (50,000 | ) | $ | 31 | $ | (579,757 | ) | $ | (113,539 | ) | $ | (693,265 | ) | |||||||||||
Net profit
|
- | - | - | - | 357,822 | (11,345 | ) | 346,477 | ||||||||||||||||||||
Foreign translation loss
|
- | - | - | (115 | ) | - | - | (115 | ) | |||||||||||||||||||
Balance as of February 28, 2013
|
50,000
|
$ | 50,000 | $ | (50,000 | ) | $ | (84 | ) | $ | (221,935 | ) | $ | (124,884 | ) | $ | (346,903 | ) |
See notes to condensed consolidated financial statements. (Unaudited)
4
ALMONDS KISSES LIMITED
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
(IN US DOLLARS)
|
For the Six Months Ended
February,
|
||||||||
2013
|
2012
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income/(loss)
|
$ | 357,822 | $ | (129,963 | ) | |||
Add: Net loss attributable to non-controlling interest
|
(11,345 | ) | (11,342 | ) | ||||
346,477 | (141,305 | ) | ||||||
Adjustments to reconcile net income/(loss) to net
|
||||||||
cash provided by operating activities:
|
||||||||
Depreciation of property and equipment
|
15,243 | 509 | ||||||
Amortization of intangible assets
|
89,750 | 89,752 | ||||||
Net loss in equity-method investment
|
5,424 | 5,425 | ||||||
Changes in assets and liabilities:
|
||||||||
Account receivable
|
(123,304 | ) | - | |||||
Utility and other deposits
|
1,282 | 8,979 | ||||||
Prepaid expenses
|
(51,932 | ) | - | |||||
Accrued liabilities
|
125,170 | 18,607 | ||||||
Temporary receipts
|
2,596 | - | ||||||
Income tax payable
|
42,988 | - | ||||||
Net cash provided by/(used in) operating activities
|
453,694 | (18,033 | ) | |||||
Cash flows from investing activities:
|
||||||||
Cash paid for property and equipment
|
(133,366 | ) | (28,494 | ) | ||||
Advance from stockholders
|
- | 78,827 | ||||||
Net cash (used in)/provided by investing activities
|
(133,366 | ) | 50,333 | |||||
Cash flows from financing activities:
|
||||||||
Bank fixed deposit
|
(128,215 | ) | - | |||||
Advance to stockholders
|
(1,648,260 | ) | - | |||||
Proceeds from bank loans
|
1,223,171 | - | ||||||
Repayment of bank loans
|
(85,672 | ) | - | |||||
Proceeds from capital lease
|
53,461 | 28,036 | ||||||
Repayment of capital lease
|
(17,014 | ) | (8,804 | ) | ||||
Net cash (used in)/ provided by financing activities
|
(602,529 | ) | 19,232 | |||||
Net (decrease)/increase in cash
|
(282,201 | ) | 51,532 | |||||
Effect on change of exchange rates on cash
|
5 | (2 | ) | |||||
Cash as of Beginning of period
|
129,001 | 10,907 | ||||||
Cash as of End of period
|
$ | (153,195 | ) | $ | 62,437 | |||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Bank loan interest paid
|
$ | 55,944 | $ | 4,826 | ||||
Capital lease interest
|
$ | 896 | $ | - | ||||
Income tax paid
|
$ | - | $ | - | ||||
Analysis of the balances of cash and cash equivalents
|
||||||||
Cash and bank balance
|
$ | 345,316 | $ | 62,437 | ||||
Bank overdraft
|
(498,511 | ) | - | |||||
$ | (153,195 | ) | $ | 62,437 |
See notes to condensed consolidated financial statements.
5
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
1.
|
Description of business and organization
|
Nature of operations
Almonds Kisses Limited ("Almonds" or “the Company”) is a holding company and, through its subsidiaries and group company, primarily engage in providing accounting, taxation, company secretarial and consultancy services. The Company together with its subsidiaries and its equity-method investment, are collectively referred to as the “Group”.
Reorganization
The Company 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 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.
Details of the Company’s subsidiary 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
|
|||
ADGS Advisory Limited “ADGS”
|
Hong Kong, People's Republic of China (“PRC”)
April 28, 2011
|
100%
|
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)
|
Holding company
|
|||
Dynamic Golden Limited
“Dynamic”
|
Hong Kong, PRC
April 16, 2004
|
30% (through ADGS Tax) | Property holding company | |||
Vantage Advisory Limited “Vantage”
|
Hong Kong, PRC
March 6, 2008
|
100%
|
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.
6
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
2.
|
Summary of significant accounting policies
|
Basis of presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared 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 complete consolidated financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the consolidated financial statements have been included. The results of operation for the three months and six months ended February 28, 2013, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.
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.
The condensed consolidated financial statements include all accounts of the Company and its subsidiary as disclosed in note 1. All material inter-company balances and transactions have been eliminated.
As both the Company and its subsidiaries, ADGS and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to periods prior to the assets and liabilities are that of the Company’s operating subsidiaries.
The accompanying financial statements are presented on a going concern basis. At February 28, 2013, the Company had a working capital surplus of $983,690 and net liabilities of $346,903. The Company started to generate a net profit of $340,145 during the three months period ended February 28, 2013 (a net loss of $111,406 for the three months period ended February 29, 2012); a net profit of $346,477 during the six months period ended February 28, 2013 (a net loss of $141,305 for the six months period ended February 29, 2012). These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management plans to continue its efforts to raise funds through debt or equity in the near future to sustain its operations.
7
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
2.
|
Summary of significant accounting policies (…/Cont’d)
|
Foreign currency translation
The Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiary within the Company maintain its books and records in their respective functional currency, Hong Kong dollars (“HK$”), being the lawful currency in Hong Kong, respectively. Assets and liabilities of the subsidiary are translated from H.K. Dollars into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income included in the stockholders’ equity section of the balance sheets. The exchange rates used to translate amounts in HKD into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:
February 28,
2013
|
August 31,
2012
|
|||||||
(Unaudited)
|
|
|||||||
Balance sheet items, except for equity accounts
|
HK$7.7991=$1
|
HK$7.800=$1
|
For the Six Months Ended
February,
|
||||||||
2013
|
2012
|
|||||||
(Unaudited)
|
||||||||
Items in statements of income and cash flows
|
HK$7.7994=$1
|
HK$7.7993=$1
|
For the Three Months Ended
February,
|
||||||||
2013
|
2012
|
|||||||
(Unaudited)
|
||||||||
Items in statements of income and cash flows
|
HK$7.7993=$1
|
HK$7.7990=$1
|
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the related services are provided and 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 Group 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 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.
8
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
2.
|
Summary of significant accounting policies (…/Cont’d)
|
Direct cost of revenue
Direct cost of revenues 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.
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 August 31, 2012 or February 28, 2013.
Accounts receivable
Accounts receivable are recorded at the invoiced amount, 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 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.
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
|
||
Leasehold improvement
|
5 years
|
|
Furniture and fixtures
|
5 years
|
|
Office equipment
|
5 years
|
|
Motor vehicles
|
5 years
|
9
ALMONDS KISSES LIMITED
|
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 TAX not owned by Almonds.
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;
|
The intangible assets are amortized using the straight line method over a period of 10 years.
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.
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.
10
ALMONDS KISSES LIMITED
|
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 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 Group records uncertain tax positions when it is more likely than not that the tax positions will not be sustained.
The Group recognizes interest and penalty related to income tax matters as income tax expense. As of February 28, 2013 and February 29, 2012, there was no penalty or interest recognized as income tax expenses.
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 $5,846 and $6,677 for the three months period ended February 28, 2013 and February 29, 2012; $15,005 and $8,847 for the six months period ended February 28, 2013 and February 29, 2012 respectively.
|
11
ALMONDS KISSES LIMITED
|
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 value FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Group. Unobservable inputs reflect the Group’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
|
Level 1 -
|
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
|
|
Level 2 -
|
Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.
|
|
Level 3 -
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The Group’s financial instruments consist principally of cash, accounts receivable, accounts payable, bank loans and accrued liabilities. 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.
12
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
3.
|
ACQUISITION OF BUSINESS
|
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:
Total asset acquired
|
$ | 2,493 | ||
Total liabilities assumed
|
(1,852 | ) | ||
Net assets acquired
|
$ | 641 |
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.
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.
4.
|
CASH
|
Cash represents cash in bank and cash on hand. Cash as of February 28, 2013 and August 31, 2012 consists of the following:
February 28,
2013
|
August 31,
2012
|
|||||||
(Unaudited)
|
||||||||
Bank balances and cash
|
$ | 345,316 | $ | 129,001 |
All cash was kept in Hong Kong, PRC. In Hong Kong, there is currently no rule or regulations mandating on obligatory insurance of bank account. Management believes these financial institutions are of high credit quality.
5.
|
ADVANCE TO STOCKHOLDERS
|
The advance to stockholders are unsecured, non-interest bearing and without fixed repayment terms. These were the advances representing the withdrawn by the stockholders after the bank loans to the Company have been granted. These bank loans were secured by the stockholders’ properties. The Company had plans to re-arrange the financing with the banks. Stockholders would repay the outstanding back to the Company and the Company would settle the bank loans. Stockholders would arrange their own financing directly with the banks.
13
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
6.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment, net consist of the following:
|
||||||||
February 28,
2013
|
August 31,
2012
|
|||||||
(Unaudited)
|
||||||||
Leasehold improvement
|
$ | 85,303 | $ | 78,251 | ||||
Furniture and fixtures
|
5,626 | 4,560 | ||||||
Office equipment
|
6,730 | 6,730 | ||||||
Motor vehicle
|
153,292 | 28,034 | ||||||
250,591 | 117,575 | |||||||
Less: Accumulated depreciation
|
(39,468 | ) | (24,225 | ) | ||||
$ | 211,483 | $ | 93,350 |
Depreciation expense for the three months ended February 28, 2013 and February 29, 2012 amounted to $8,958 and $255; for the six months ended February 28, 2013 and February 29, 2012 amounted to $15,243 and $509 respectively.
Included in motor vehicle of the Group, the net carrying amount of $142,208 as of February 28, 2013 and $22,427 as of August 31, 2012 is under capital lease with the related depreciation charge for of $4,075 and $Nil for the three months ended February 28, 2013 and February 29, 2012; $5,477 and $Nil for the six months ended February 28, 2013 and February 29, 2012 respectively.
7.
|
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 at February 28, 2013. Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of February 28, 2013, are as follows:
Amount
|
||||
Year ending August 31,
|
||||
2013 (Six months)
|
$ | 27,557 | ||
2014
|
27,557 | |||
Thereafter
|
- | |||
Total minimum lease payment
|
55,114 | |||
Less: Imputed interest
|
(4,065 | ) | ||
Present value of net minimum lease payments
|
51,049 | |||
Less: Current maturities of capital leases obligations
|
(4,909 | ) | ||
Long-term capital leases obligations
|
$ | 46,140 |
14
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
8.
|
INTANGIBLE ASSET
|
Intangible assets consist of customer lists purchased from three unrelated parties pursuant to the agreements dated June 21, 2005 and April 28, 2011.
The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the three months ended February 28, 2013 and February 29, 2012 are $44,875 and $44,877; for the six months ended February 28, 2013 and February 29, 2012 are $89,750 and $89,752 respectively.
9.
|
INCOME TAXES EXPENSES
|
The entities within the Group file separate tax returns in the respective tax jurisdictions that they operate.
The Company 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 is domiciled in Hong Kong and subject to statutory profits tax of 16.5% if it incurred revenue and profits in Hong Kong.
For the Company’s subsidiary, ADGS Advisory Limited, provision for Hong Kong profits tax has been made for the six months ended February 28, 2013 amounted to $42,823 and no provision for Hong Kong profits tax has been made as the subsidiary suffered tax losses for the six months ended February 29, 2012.
For the Company’s subsidiary, ADGS Tax Advisory Limited, no provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the six months ended February 28, 2013 and February 29, 2012.
For the Company’s subsidiary, Vantage Advisory Limited, provision for Hong Kong profits tax has been made for the three months ended February 28, 2013 amounted to $165.
15
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
9.
|
INCOME TAXES EXPENSES (…/Cont’d)
|
The Company's income tax for the six months ended February 28, 2013 and February 29, 2012 can be reconciled to the income before income tax expenses in the statement of operations as follows:
For the Three months ended
February,
|
For the Six months ended
February,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Income/(loss) before tax
|
$ | 383,133 | $ | (111,406 | ) | $ | 389,465 | $ | (141,305 | ) | ||||||
Expected Hong Kong income tax expense
|
$ | 63,217 | $ | - | $ | 64,262 | - | |||||||||
at statutory tax rate of 16.5%
|
||||||||||||||||
Temporary difference
|
(3,528 | ) | - | (3,240 | ) | - | ||||||||||
Utilization of tax losses
|
(21,382 | ) | - | (27,394 | ) | - | ||||||||||
Unrealised tax loss
|
4,681 | - | 9,360 | - | ||||||||||||
Actual income tax expense
|
$ | 42,988 | $ | - | $ | 42,988 | $ | - |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
February 28,
2013
|
August 31,
2012
|
|||||||
Deferred tax asset:
|
||||||||
Unrecognized tax losses
|
$ | - | $ | 26,111 | ||||
Deferred tax liability:
|
||||||||
Difference between book and tax depreciation
|
$ | 2,654 | $ | 7,081 |
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 February 28, 2013, no deferred tax asset has been provided in the accounts.
16
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
10.
|
BANK LOANS
|
The details of the bank loans outstanding as of February 29, 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$1,024,779
(HK$7,992,354)
|
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$230,543
(HK$1,798,026)
|
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$247,435
(HK$1,929,768)
|
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$769,320
(HK$6,000,000)
Loan limit:
US$769,320
|
SCB annual rate of 0.75% over prime or annual rate of 2% over the overnight HIBOR, whichever is higher
|
Revolving loan
|
Renewal in every 6 months
|
Property and personal guaranteed from related party and third party
|
|||||
|
|
|||||||||
Hang Seng Bank ("HSB")
|
US$155,790
(HK$1,214,022)
|
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$23,421
(HK$182,659)
|
HC annual rate of 6.98%
|
Term loan
|
June 29, 2012 to November 25, 2013
|
Personal guaranteed from related party
|
|||||
DBS Bank (“DBS”)
|
US$1,211,531
(HK$9,448,858)
|
DBS annual rate of 2.75%
|
Installment loan
|
November 12, 2012 to October 12, 2037
|
Dynamic’s property
|
|||||
$ |
3,662,819
|
17
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
10.
|
BANK LOANS (…/Cont’d)
|
The details of the bank loans outstanding as of August 31, 2012 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$1,037,480
(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
|
|||||
|
|
|
||||||||
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)
|
SCB annual rate of 0.75% over prime or annual rate of 2% over the overnight HIBOR, whichever is higher
|
Revolving loan
|
Renewal in every 6 months |
Property and personal guaranteed from related party and third party
|
|||||
|
|
|||||||||
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 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
|
|||||
$ |
2,524,985
|
Interest expenses for the three months ended February 28, 2013 and February 29, 2012 are $26,684 and $3,450; six months ended February 28, 2013 and February 29, 2012 are $55,944 and $4,826 respectively.
Bank loans repayment schedule as of February 28, 2013 is as follows:
2013
|
2012
|
|||||||
Year ending August 31,
|
||||||||
2013 (Six months)
|
$ | 872,872 | $ | - | ||||
2014
|
165,426 | - | ||||||
2015
|
172,588 | - | ||||||
2016
|
180,100 | - | ||||||
2017
|
147,274 | - | ||||||
Thereafter
|
2,124,559 | - | ||||||
$ | 3,662,819 | $ | - |
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.
18
ALMONDS KISSES LIMITED
|
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
(IN US DOLLARS)
|
11.
|
CONCENTRATIONS OF RISK
|
The Group's credit risk is somewhat limited due to a relatively large customer base. During the three and six months ended February 28, 2013 and February 29, 2012, the Group had no customer which accounted for 10% or more of total revenue.
12.
|
COMMITMENTS AND CONTINGENCIES
|
Commitments and contingencies
(a)
|
In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising out of 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, the Group has not recognized a liability claims, no contingent liability has been recorded as of February 28, 2013 and August 31, 2012.
|
(b)
|
Rental expense amounted to $39,483 and $36,688 for the three months ended February 28, 2013 and February 29, 2012; $80,463 and $70,771 for the six months ended February 28, 2013 and February 29, 2012 respectively. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of February 28, 2013 are payable as follows:
|
Year Ended August 31,
|
Rental
|
|||
2013(Six months)
|
$ | 88,461 | ||
2014
|
112,887 | |||
2015
|
28,222 | |||
2016
|
- | |||
2017
|
- | |||
Over five years
|
- | |||
$ | 229,570 |
Economic and political risks
(c)
|
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.
13.
|
COMPARATIVE FIGURES
|
Certain comparative figures have been reclassified to conform to current period's presentation. The director considers that the new reclassification provides a more appropriate presentation of the state of affairs of the Group.
19
ALMONDS KISSES LIMITED
|
||||||
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
||||||
(IN US DOLLARS)
|
14.
|
SUBSEQUENT EVENTS
|
Upon consummation of the Acquisition which occurred on April 12, 2013, the Company became a wholly-owned subsidiary and the former shareholders of the Company became the shareholders of a shell company, “Life Nutrition Products, Inc.”. A resolution was then passed on May 10, 2013 to change the name of “Life Nutrition Products, Inc.” to “ADGS Advisory, Inc.”.
20