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EX-32.1 - CERTIFICATION - Quality Online Education Group Inc.adgs_ex321.htm
EX-31.2 - CERTIFICATION - Quality Online Education Group Inc.adgs_ex312.htm
EX-31.1 - CERTIFICATION - Quality Online Education Group Inc.adgs_ex311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended AUGUST 31, 2014

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-3427

 

ADGS ADVISORY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

42-1743717

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number) 

 

11/F, Rykadan Capital Tower

135-137 Hoi Bun Road, Kwun Tong

Kowloon, Hong Kong, SAR

 

N/A

(Address of principal executive offices)

 

(Zip Code) 

 

Registrant’s telephone number, including area code: (852) 2374-0002

 

Securities registered pursuant to Section 12(b) of the Exchange Act: None

 

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock ($.0001 par value)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

 

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

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

  

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of February 28, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, was $33,961,000. The number of shares outstanding of the Common Stock ($.0001 par value) of the registrant as of the close of business on February 10, 2015 was 36,704,789.

 

Documents Incorporated by Reference: None

 

 

ADGS ADVISORY, INC.

 

TABLE OF CONTENTS

 

    Page  
   
PART I

 

 

   

Item 1.

Business

 

4

 
     

Item 1A.

Risk Factors

 

11

 
     

Item 1B.

Unresolved Staff Comments

 

17

 
     

Item 2.

Properties

 

17

 
     

Item 3.

Legal Proceedings

 

17

 
     

Item 4.

Mine Safety Disclosures

 

17

 
     

PART II

     

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

18

 
     

Item 6.

Selected Financial Data

 

21

 
     

Item 7.

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

 

21

 
     

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

30

 
     

Item 8.

Financial Statements and Supplementary Data

 

30

 
     

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

30

 
     

Item 9A.

Controls and Procedures

 

31

 
     

Item 9B.

Other Information

 

31

 
     

PART III

     

Item 10.

Directors, Executive Officers and Corporate Governance

 

32

 
     

Item 11.

Executive Compensation

 

34

 
     

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

35

 
     

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

35

 
     

Item 14.

Principal Accountant Fees and Services

 

36

 
     

PART IV

     

Item 15.

Exhibits and Financial Statement Schedules

 

37

 
     

Signatures

 

39

 

 

 
2

 

Special Note Regarding Forward Looking Statements

 

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

Use of Certain Defined Terms

 

Except where the context otherwise requires and for the purposes of this report only:

 

 

·

the “Company,” “we,” “us,” and “our” refer to the combined business of ADGS Advisory, Inc. (formerly known as Life Nutrition Products, Inc.), a Delaware corporation, and its direct and indirect wholly-owned subsidiaries, Almonds Kisses Limited (BVI), a British Virgin Islands company, ADGS Advisory Limited, a Hong Kong corporation, Vantage Advisory Limited, a Hong Kong corporation, Motion Tech Development Limited, a British Virgin Islands company, and TH Strategic Management Limited, a Hong Kong corporation, as well as ADGS Tax Advisory Limited, a Hong Kong corporation which is an 80% owned subsidiary, and Dynamic Golden Limited, a Hong Kong corporation which is a 30% owned subsidiary;

     
 

·

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

 

·

“HKD” refers to Hong Kong dollars, the legal currency of Hong Kong;

     
 

·

“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;

     
 

·

“PRC,” “China,” and “Chinese,” refer to the People's Republic of China;

 

 

·

“SEC” refers to the Securities and Exchange Commission;

     
 

·

“Securities Act” refers to the Securities Act of 1933, as amended; and

     
 

·

“U.S. dollars,” “dollars”, “USD” and “$” refer to the legal currency of the United States.

 

In China it is customary to refer to a person’s name with the family name first and the given name second. We have followed this convention with respect to certain Chinese individuals named in this report.

 

 
3

 

PART I

 

Item 1. Business.

 

General Overview

 

We are primarily engaged in providing accounting, taxation, company secretarial, general corporate and consultancy services in Hong Kong.

 

The address of our principal executive office is 11/F, Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR. Our telephone number is (852) 2374-0002.

 

Corporate History and Background

 

ADGS Advisory, Inc., which was incorporated in the State of Delaware in September 2007 under the name Life Nutrition Products, Inc., was previously a dietary supplement company specializing in the development marketing and distribution of all natural, proprietary, dietary supplements under the names Trim For Life® Appetite Control and Trim For Life® Energy Formula. Pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, Life Nutrition Products, Inc. changed its corporate name to ADGS Advisory, Inc.

 

In our original business plan, we outlined a marketing strategy to compete more effectively in the dietary supplement marketplace. However, due to a lack of available financing, we were unable to implement the marketing strategy or invest in product expansion. We are no longer pursuing this business. As a result, we began to explore other viable options that may provide the potential to generate a positive cash flow to accommodate the costs of being a public company. With volatile economic conditions and unknown opportunities, we are unable to adequately determine if there are indeed, business opportunities that would lend to the Company acquiring additional capital or having the available resources to construct such a deal.

 

On September 7, 2010, we entered into a Share Exchange Agreement (the “Conqueror Share Exchange Agreement”) with Conqueror Group Limited, a Hong Kong corporation (“Conqueror”) and Acumen Charm Ltd., a British Virgin Islands corporation (the “Conqueror Shareholder”). Pursuant to the Conqueror Share Exchange Agreement, at the closing of the transaction contemplated in the Conqueror Share Exchange Agreement (the “Conqueror Transaction”), the Company was to acquire 100% of the issued and outstanding capital stock of Conqueror from the Conqueror Shareholder, making Conqueror a wholly-owned subsidiary of the Company. There was no prior relationship between the Company and any of its affiliates and the Conqueror Shareholder and any of its affiliates.

 

The Closing was to transpire on or before January 31, 2011 but it did not occur by that date. However, as of May 11, 2011, among other things, Michael M. Salerno, the Company’s then sole officer and director, resigned as an officer and director of the Company, and appointed Chu Zhanjun and Li Gang as directors, and Chu Zhanjun as President, Chief Executive Officer and Principal Financial Officer of the Company, each a designee of Conqueror. As a result, a change in control occurred, due to the resignation of Mr. Salerno as sole officer and director, appointment of Mr. Chu as President, Chief Executive Officer and Principal Financial Officer of the Company, and appointment of Mr. Chu and Mr. Li as directors. At the time, the parties anticipated that the transaction contemplated by the Conqueror Share Exchange Agreement would not be completed at any time in future.

 

On December 7, 2012, Life Nutrition Products, Inc. entered into a share exchange agreement (the “Original Exchange Agreement”) with ADGS Advisory Limited, a Hong Kong corporation (“ADGS Hong Kong”) and ADGS Advisory (Holding) Limited, a British Virgin Islands corporation (“ADGS Holding”). Pursuant to the Original Exchange Agreement, at the closing of the transaction contemplated thereunder (the “Transaction”), the Company agreed to acquire 100% of the issued and outstanding capital stock of ADGS Hong Kong, making ADGS Hong Kong a wholly-owned subsidiary of the Company. In consideration for the purchase of 100% of the issued and outstanding capital stock of ADGS Hong Kong, the Original Exchange Agreement provided that the Company would issue a total of 20,155,000 newly issued shares of the Company’s Common Stock.

 

On March 28, 2013, the Company entered into an amendment (the “Amendment”) to the Original Exchange Agreement (the Original Exchange Agreement, as amended is referred to herein as the “Exchange Agreement”) pursuant to which the Company agreed to acquire all of the outstanding shares of Almonds Kisses Limited (BVI), a British Virgin Islands company (“Almonds Kisses BVI”), from the eight shareholders of Almonds Kisses BVI (the “Shareholders”), instead of the shares of ADGS Hong Kong, on the same terms and conditions set forth in the Exchange Agreement. Almonds Kisses BVI is the owner of 100% of the issued and outstanding capital stock of ADGS Hong Kong. The Original Exchange Agreement incorrectly indicated that such owner was ADGS Holdings which error was corrected in the Amendment. The Shareholders were Tong Wing Yee, Tong Wing Shan, Tso Yin Yee, Pang Yiu Kwong, Sin Kok Ho, Fahy Roase-Collette, Tsang Kwai Chun and ADGS Holdings, each of whom executed the Amendment. In addition, on March 28, 2013, the parties to the Exchange Agreement entered into an Extension Agreement (the “Extension Agreement”) extending the closing date of the Transaction to on or before April 15, 2013.

 

 
4

 

On April 12, 2013, the transactions contemplated by the Exchange Agreement were consummated whereby, among other things, the Company acquired all of the issued and outstanding capital stock of Almonds Kisses BVI in exchange for an aggregate of 20,155,000 newly issued shares of the Company’s Common Stock (the “Acquisition”).

 

As a result of the Acquisition, Almonds Kisses BVI became our wholly-owned subsidiary and the former shareholders of Almonds Kisses BVI became our controlling shareholders, and Almond Kisses BVI in turn owns all of the issued and outstanding capital stock of ADGS Hong Kong. Almonds Kisses BVI also owns 100% of the issued and outstanding capital stock of Vantage Advisory Limited, a Hong Kong corporation (“Vantage”) which was acquired by Almonds Kisses BVI in January 2013; 100% of the issued and outstanding capital stock of Motion Tech Development Limited, a British Virgin Islands company (“Motion Tech”), which was acquired in August 2013; and, 100% of the issued and outstanding capital stock of T H Strategic Management Limited, a Hong Kong corporation (“T H Strategic”), which was acquired in October 2013. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company. Dynamic Golden Limited which is also a Hong Kong incorporated company was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI.

 

Almonds Kisses BVI was incorporated on March 1, 2011 as a limited liability company in the British Virgin Islands (“BVI”) and, as originally constituted, was owned by the eight Shareholders identified above. ADGS Hong Kong is a Hong Kong corporation which was incorporated on April 28, 2011 and, as originally constituted, was solely owned by Tong Wing Yee and Tong Wing Shan (two of the shareholders of Almonds Kisses BVI) until being acquired by Almonds Kisses BVI pursuant to a transaction completed on April 30, 2011 in contemplation of the Acquisition. In this regard and in anticipation of effecting a transaction which resulted in the Acquisition, on April 30, 2011 Tong Wing Yee and Tong Wing Shan exchanged their shares for additional shares in Almonds Kisses BVI in order to create a BVI holding company structure for the operating business. British Virgin Islands holding companies have been utilized in Hong Kong for many years by entrepreneurs undertaking business in Hong Kong. Management believes such structure may provide certain advantages in the future in that shares held in a Hong Kong corporation are subject to a fairly substantial stamp duty on the transfer of any of such shares while the transfer of shares in a BVI company is not subject to any stamp duty in the BVI. In addition, Management further believes the BVI holding company structure may provide other benefits in the future including more corporate flexibility in that mergers can be effected by a BVI company compared to Hong Kong where a Hong Kong company is not able to merge with any entity insofar that a merger is not provided for under the Hong Kong Companies Ordinance.

 

Vantage is a Hong Kong corporation which was incorporated on March 6, 2008 and has been wholly owned by Almonds Kisses BVI since January 2013. Motion Tech is a British Virgin Islands company which was incorporated on October 7, 2007 and has been wholly owned by Almonds Kisses BVI since August 2013. Motion Tech is a property holding company which owns a residential property. T H Strategic is a Hong Kong corporation which was incorporated on March 16, 2010 and has been wholly owned by Almonds Kisses BVI since October 2013. ADGS Tax Advisory Limited (“ADGS Tax”) is a Hong Kong incorporated holding company incorporated on March 17, 2003 and owns certain customer lists and client bases which were purchased in 2005. ADGS Tax is 80% owned by ADGS Hong Kong. Dynamic Golden Limited which is also a Hong Kong incorporated company, which was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI, owns an investment in residential real property located in Tuen Mun, New Territories, Hong Kong.

 

As a condition to the consummation of the Acquisition, on the Acquisition Date the officers and directors who were designees of Conqueror resigned as officers and directors of Life Nutrition Products, Inc. and the new officers and directors identified below were appointed as officers and directors of Life Nutrition Products, Inc.

 

As indicated above, T H Strategic has been a wholly owned subsidiary of Almonds Kisses BVI since October 2013. Such acquisition was completed pursuant to an Agreement for Sale and Purchase of Shares entered into by Almonds Kisses BVI with Li Hon Lun pursuant to which on October 20, 2013 Almonds Kisses BVI acquired all of the issued and outstanding shares of T H Strategic from Li Hon Lun. T H Strategic is a Hong Kong based accounting services and business consulting firm.

 

In consideration for acquisition of the issued and outstanding shares of T H Strategic, Almonds Kisses BVI agreed to pay Li Hon Lun the sum of HK $4.0 million (approximately US $516,000) payable in four equal monthly installments of HK $1.0 million (approximately US $129,000) each. All of such installments were paid by the end of February 2014.

 

During fiscal 2014, the Company also acquired two client bases from an unrelated party for consideration of approximately $155,000 and $322,477 respectively (HK$1.2 million and HK$4 million respectively). The consideration of one of them was payable in four equal monthly installments of $38,700 (HK $300,000) each. All of such installments and the amount due for the other client base have been paid.

 

 
5

 

The chart below presents our corporate structure:

 

 

 

ADGS Advisory, Inc.

(formerly Life Nutrition Products, Inc.),

a Delaware corporation

 

 

 

 

 

 

 

 

 

     100%

 

 

 

 

 

 

 

 

 

Almonds Kisses Limited (BVI),

a British Virgin Islands company

 

 

 

 

 

 

 

     100%

     100%

     100% 

     100%

     30%

 

 

 

 

 

ADGS Advisory Limited

Vantage Advisory Limited,

T H Strategic Management  

Motion Tech Development 

Dynamic Golden

a Hong Kong corporation a

Hong Kong corporation

Limited, a Hong Kong  

Limited, a British Virgin Islands

Limited, a Hong Kong

 

 

corporation 

company

corporation

 

 

 

 

 

     80%

 

 

 

 

 

 

 

 

 

ADGS Tax Advisory Limited

 

 

 

 

a Hong Kong corporation

 

 

 

 

 

The following table lists the directors and officers of the foregoing entities.

 

Corporate Name

 

 Directors

 

Officers

ADGS Advisory, Inc.

 

Li Lai Ying

Tso Yin Yee

Pang Yiu Kwong

 

Fu Kei Man Derek

Anderson Amanda

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

Almonds Kisses Limited

(BVI)

 

Tso Yin Yee

Tong Wing Shan

Tong Wing Yee

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

ADGS Advisory Limited

 

Tso Yin Yee

Tong Wing Shan

Tong Wing Yee

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

Vantage Advisory Limited

 

Pang Yiu Kwong

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

Motion Tech Development Limited

 

Tong Wing Yee

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

T H Strategic Management

Limited

 

Li Hon Lun

 

CEO: Li Lai Ying

CFO: Tong Wing Shan

COO: Tso Yin Yee

 

 

 

 

 

ADGS Tax Advisory Limited

 

Tong Wing Yee

 

CEO: Tong Wing Yee

CFO: Tong Wing Yee

 

 

 

 

 

Dynamic Golden Limited

 

Tong Wing Yee

 

CEO: Tong Wing Yee

CFO: Tong Wing Yee

 

 
6

 

Recent Developments

 

On July 30, 2014, the Company, through ADGS Hong Kong, entered into a Customer List Purchase Agreement (the “July 2014 Purchase Agreement”) with Lau Kam George and Yung Chi Shing (collectively, the “Sellers”) pursuant to which ADGS Hong Kong has agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong.

 

In consideration for the acquisition of the customer list, ADGS Hong Kong has agreed to pay the Sellers the sum of approximately US $1.5 million (HK $12.0 million) and 5,000,000 shares of the common stock of the Company. Such amount is to be paid as follows: (i) approximately US $258,000 (HK $2.0 million) upon signing of the July 2014 Purchase Agreement which amount has been paid, (ii) approximately US $387,000 (HK $3.0 million) on or before March 30, 2015, and (iii) the balance of the purchase price of approximately US $903,000 (HK $7.0 million) in 18 monthly installments commencing one month after closing. The shares of common stock are to be issued at closing. Subsequent to the year ended August 31, 2014, and in January 2015, the Company paid half of the second installment described above.

 

The closing of the acquisition is subject to various conditions including but not limited to ADGS Hong Kong being satisfied in its due diligence review following the execution of the July 2014 Purchase Agreement that revenues for the period of April 1, 2013 to June 30, 2014 meet the amount of HK $10.0 million (approximately US $960,000). The closing, which is expected to occur on or before March 30, 2015, is subject to the delivery of the customer list by the Sellers, and each of the Sellers having entered into mutually acceptable employment agreements and operating agreements with ADGS Hong Kong. Following the closing, the amount of the aggregate purchase price will be adjusted based upon revenues achieved in the 14 month period following the closing.

 

On August 20, 2014, the Company acquired 2% of the issued and outstanding capital stock of Elite Global Group Limited (incorporated in Hong Kong) (“Elite Global”) from one of the then two shareholders of Elite Global for the sum of approximately $2,000,000 (HK $15,000,000) payable by the transfer of certain receivables due to a subsidiary of the Company. Elite Global has entered into a Preliminary Development Agreement with Viacom Media Networks to construct and establish a new entertainment theme park in the PRC. Elite Global is expected to submit a development plan for Viacom’s approval and then obtain a license to operate the theme park. The Company is not aware of the proposed timeframe for completion of the foregoing. In addition, Elite Global is a party to a Joint Venture Agreement with Simson Giftware which operates and manufactures merchandise for theme stores in Taiwan and Hong Kong. Pursuant to the agreement with the seller of the shares, the Company retains the right to request the seller to buy back all or part of the shares purchased at $2,000,000 or such proportionate amount, if any, after August 20, 2015.

 

The Company was also a party to a Memorandum of Understanding entered into with Elite Global pursuant to which the Company was to provide certain consulting and advisory services in connection with the construction of the proposed entertainment theme park in the PRC. Such Memorandum of Understanding is no longer in effect.

 

Description of Business

 

General

 

We provide a wide range of services in Hong Kong to individuals, small and medium sized businesses and charitable organizations in accounting, taxation, company secretarial, general corporate and consulting services. All of our business operations and services are performed in Hong Kong. However, we also maintain branch offices in Shenzhen, PRC and Bangkok, Thailand for marketing purposes only in order to attract potential clients to use our services in Hong Kong for businesses or other ventures which such potential clients may maintain in Hong Kong. Our primary business segments are described below.

 

Accounting and Corporate Services

 

Accounting

 

Our team of accounting business professionals can provide general accounting services for a business, including, but not limited to, bookkeeping services, including preparing a general ledger for a client, spreadsheet, income statements, cash flow statements and balance sheets, which services can be performed monthly, quarterly or annually; preparing other accounting and financial reports; providing assistance in managing compliance obligations; preparing and filing tax returns; providing assistance with payroll and invoicing, strategic planning, financial modeling and cash flow; evaluating accounting systems and processes; reporting key performance indicators and benchmarks; performing a business health check; and, providing a strategic cost management. Our business professionals can offer practical accounting and business solutions to assist our clients in identifying risks and opportunities, ensuring that their business remains profitable and competitive, and providing general guidance in building wealth and protecting assets.

 

 
7

 

Corporate Services

 

We believe our staff can provide expert advice and practical assistance to a company in managing its regulatory and reporting obligations along with monitoring its compliance and secretarial responsibilities. Such services which we can offer include:

 

 

·

Company secretarial services;

     
 

·

Corporate governance;

     
 

·

The maintenance of records of contacts, nomination/appointment/resignation of directors, bank signatories, major shareholders according to the Memorandum and Article of Association (M&A) or Company Constitution;

     
 

·

Meeting regulatory obligations relating to the preparation of annual general meetings and filing of annual returns;

     
 

·

Administrative work for statutory requirements, such as preparation and maintenance of corporate records, bookkeeping, accounting, and financial transactions.

 

Tax Advisory

 

We have practicing members of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) with more than ten years of taxation experience who can provide tax planning services for our clients. Such services can include:

 

 

·

Preparation and filing a tax return;

     
 

·

Calculating the estimated tax liability;

     
 

·

Tax planning;

     
 

·

Assist clients to reply to any inquiries issued by the taxing authorities;

     
 

·

Act as the tax representative of our clients in connection with tax assessments.

 

Corporate Restructuring and Insolvency

 

We recognize that each year, there will be a percentage of unsuccessful businesses resulting in liquidation or company restructuring. We can offer the services of highly qualified insolvency practitioners whose goal is to rescue the situation and avoid formal bankruptcy or insolvency proceedings.

 

Our approach to client relationships is underpinned by a partner-led delivery of services. We have found that our partner-led approach creates a greater sense of trust, due to the stronger personal relationship developed. In this regard, we have an established history of working closely with financial institutions, law firms and smaller accountancy firms.

 

Our team of professionals has extensive local knowledge in conducting business reviews and advising lenders, directors and other stakeholders on options available to enterprises facing financial hardship. We can help a business to develop strategies to maximize returns and preserve the value of the business. Our services encompass all facets of:

 

 

·

Company winding-up including voluntary winding-up and compulsory winding-up

     
 

·

Personal bankruptcy

     
 

·

Restructuring services

     
 

·

Lender services

     
 

·

Creditors’ rights

     
 

·

Monitoring services

     
 

·

Receivership

     
 

·

Turnaround management

 

 
8

 

Multi-Disciplinary Advisory

 

Forensic and Litigation Advisory

 

We provide multidisciplinary, independent dispute advisory, investigative, data acquisition/analysis and forensic accounting services to clients throughout the life cycle of a litigation. Our team supports clients facing high stakes litigation, arbitration and compliance investigations, and regulatory scrutiny.

 

Our services include:

 

 

·

Quantifying damages and providing independent expert opinion in a range of dispute situations relating to intellectual property, breach of contract, insurance claims, asset recovery and fraud/criminal investigations;

     
 

·

Employing forensic accounting and complex modeling methods to provide insight on the facts and offer clarity on complex financial transactions;

     
 

·

Independently tracing, gathering and analyzing critical information;

     
 

·

Offering industry‐leading electronic evidence services that identify, preserve and collect relevant, structured information and analyze complex data.

 

Engineering Services

 

We can provide a diversified range of engineering services including waterworks engineering, water distribution system maintenance, slope safety detection, landslide risk prevention methods and buried water conduit testing. Established as a remedial specialist in Hong Kong, we have carried out small to large scale projects on behalf of public sector bodies.

 

Quantity Surveying

 

The function of the quantity surveyor is estimating and controlling construction cost. We can provide construction cost advice, construction cost estimating and advice relating to construction services which are affordable and tailored to a client’s specific needs. Quantity surveying services range from preliminary cost estimates during feasibility, project management and cost control during construction and tax depreciation schedules and sinking fund forecasts during post construction.

 

Business Development Service in PRC and Thailand

 

Although all of our business operations and services are performed in Hong Kong, we also maintain branch offices in Shenzhen, PRC and Bangkok, Thailand for marketing purposes only in order to attract potential clients to use our services in Hong Kong for businesses or other ventures which such potential clients may maintain in Hong Kong. In connection therewith, we have retained an individual who is a professional accountant and has been an investment banker with approximately 30 years of experience in the PRC and Australia to manage this new area of business for us. We believe there are a sufficient number of individuals and other entities in both the PRC and Thailand with business dealings in Hong Kong that justify our marketing efforts in those areas. However, there can be no assurance that we will be able to successfully manage and grow our business through such marketing efforts in both the PRC and Thailand.

 

Market Analysis

 

Although there are many consulting companies in Hong Kong providing similar services, we believe that that there a few consulting companies in Hong Kong that have professional standards equal to ours in the business segments in which we provide service. We believe the Company has a solid and loyal client base in a market that has experienced a certain level of sustained growth in recent years.

 

The following market trends seem to be the most important to our business:

 

Trend 1 – Accountancy service. Accountancy is a growing market. The tightening of financial regulations, in the wake of a number of recent scandals, and the onus being put on small businesses/individuals to submit accounts that meet stricter standards of compliance, should contribute to continued growth for the Company. Financial reporting and corporate governance are growth areas. The trend to outsource services is well established for businesses, and we believe such trend will continue and increase with the difficulty many companies face in finding suitable employees.

 

Trend 2 – Bookkeeping service. Presently, many small companies do not have full-time accountants for their accountancy work, and we believe many will use the services of an outside accountant or company to minimize operating costs and achieve a higher level of financial management oversight. Businesses regularly need the services of a qualified accountant to help compile or check that financial records are in order and up to date.

 

 
9

 

Trend 3 – Company secretarial service. According to Hong Kong Companies Ordinance, every company shall have a secretary. The company secretary shall (a) if an individual, ordinarily reside in Hong Kong; (b) if a body corporate, has its registered office or place of business in Hong Kong. The company secretary can also be a director. However, if there is only one director, he/she/it shall not also be the secretary of the company. We believe many companies in Hong Kong have only one director so they need to appoint a company secretary. Such services are offered and can be performed by us.

 

Trend 4 – Corporate recovery and insolvency services. As described above, each year there will be a percentage of unsuccessful businesses resulting in liquidation or company restructuring. We can offer the services of highly qualified insolvency practitioners. Our Chief Operating Officer, Tso Yin Yee and our Senior Assurance & Business Advisory Consultant, Pang Yiu Kwong are experienced insolvency practitioners having being appointed as Joint and Several Provisional Liquidators under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region.

 

Trend 5 – General consulting. With growing competition, increasing economic and business sophistication and regulatory compliance requirements, more companies need advice and strategies from experts and consultants across a wide range of specialties.

 

Customers

 

As mentioned above, our services are primarily provided to individuals, small and medium sized businesses and charitable organizations. In addition to our marketing efforts to attract potential new clients, we have in the past purchased customer lists and client bases from unrelated third parties in order to increase our customer base. Prior to our formation, customer lists and client bases were purchased in 2005 by ADGS Tax and customer lists and client bases were purchased in 2011 by ADGS Hong Kong. Such customer lists and client bases were purchased from unrelated accounting firms and secretarial companies and are accounted for as intangible assets and amortized using the straight line method over a period of 10 years. In addition, in September 2013, we acquired a new client base from an unrelated party, and in October 2013, we further increased our client base by purchasing all of the issued and outstanding shares of TH Strategic whereby TH Strategic became a wholly owned subsidiary of Almonds Kisses BVI. TH Strategic is a Hong Kong based accounting services and business consulting firm. In the future, we expect that we will seek to purchase other customer lists and client bases, as well as possibly purchasing other businesses, as part of our overall growth strategy, although there can be no assurance that we will be able to do so on terms which will be acceptable to us.

 

See “Recent Developments” above for information on the Customer List Purchase Agreement entered into on July 30, 2014 with Lau Kam George and Yung Chi Shing (collectively, the “Sellers”) pursuant to which ADGS Hong Kong has agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong. The transaction is expected to close on or before March 30, 2015.

 

Our Competition

 

Competition in the general field of business consulting is quite intense in Hong Kong. Although numerous established companies offer a variety of services to different customer segments, we consider competition in our focus market niche of small and medium business to be modest. Customers in this segment strongly rely on the consultant’s professional qualifications and the ability to come up with viable solutions in a timely and cost effective manner. Although we believe that we have unique strengths compared with our competitors, our industry is highly competitive and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors across the country, some of which have significantly greater financial, marketing and other resources than we have. New or existing competition that uses a business model that is different from our business model may put pressure on us to change so that we can remain competitive.

 

We believe we achieve a competitive edge among the bookkeeping and accountancy services due to the combination of CPA oversight we maintain with lower-level, inexpensive labor. Clients will receive the advantage of having a CPA review their books and provide additional advice when appropriate, while not paying much more than they would to hire their own bookkeeper.

 

In addition, for other consultancy services such as taxation, insolvency and other general consulting, we have a wide range of professionals in house who can provide complete, reliable and high quality services to our clients.

 

 
10

 

We believe the larger consulting firms tend to ignore the small business market because they are better positioned to serve larger businesses. Many of these large consulting firms have several hundred employees and we believe are generally not interested in dealing with small and medium business. In addition, we believe we offer more diversified services than many other small consulting companies who tend to offer services to particular industries and restrict themselves in the services they offer.

 

Government Regulation

 

Our services generally are not subject to governmental regulation in the markets in which we operate. However, our clients may require that we comply with certain rules and regulations even if those rules and regulations do not actually apply to us. In addition, our clients may require that certain of our service providers who provide services maintain certain professional licenses in order to provide the appropriate services for that particular client. We are also governed by laws in Hong Kong regulating the employer/employee relationship, such as tax withholding and reporting, social security or retirement, anti-discrimination and workers compensation. Failure to comply with any applicable laws and regulations could result in restrictions on our ability to provide our services, as well as the imposition of fines and penalties, which could have a material adverse effect on our operations.

 

Our Employees

 

We currently employ 30 full time people consisting of 3 executive management, 5 senior consultants and 22 staff. We require our employees to have appropriate education, training or work experience in their respective fields. We believe that our management team possesses in-depth knowledge critical to our Company’s success and is capable of identifying and seizing market opportunities, and implementing our business plans. We believe we are in material compliance with all applicable labor and safety laws and regulations in Hong Kong. 

 

Item 1A. Risk Factors.

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward-Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

 

Risks Related to Our Business

 

Our company has limited operating history, which makes it difficult to predict our future prospects and financial performance. We have only been engaged in our current business operations since March 2011. Due to this limited operating history, it may be difficult to evaluate our business prospects and financial performance. While we achieved net income for the fiscal years ended August 31, 2014 and 2013, we sustained a net loss for each of the fiscal years ended August 31, 2012 and August 31, 2011. There can be no assurance that we can maintain profitability beyond fiscal 2014. Further, our future operating results depend upon a number of factors, including our ability to manage our growth, retain and increase our customer base and to successfully identify and respond to any emerging trends in our market areas.

 

We may have difficulty in managing our future growth and any associated increased scale of our operations. We expect to expand through both organic growth and acquisitions. Our future expansion may place a significant strain on our managerial, operational, technical and financial resources. In order to better allocate our resources to manage our growth, we must hire, recruit and manage our workforce effectively and implement adequate internal controls in a timely manner. If we are unable to effectively manage our growth and the associated increased scale of our operations, our business, financial condition and results of operations could be materially and adversely affected.

 

 
11

 

Our business requires significant and continuous capital investment. We will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. Our ability to obtain external financing in the future at a reasonable cost is subject to a variety of uncertainties, including:

 

 

·

our future financial condition, results of operations and cash flows;

 

 

 

 

·

the condition of the global and domestic financial markets; and

 

 

 

 

·

changes in the monetary policy of the Hong Kong governments with respect to bank interest rates and lending practices.

 

If we require additional funds and cannot obtain them on acceptable terms when required or at a reasonable financing cost or at all, we may be unable to fulfill our working capital needs or expand our business. These or other factors may also prevent us from entering into transactions that would otherwise benefit our business or implementing our future strategies. Any of these factors may have a material adverse effect on our business, financial condition and results of operations.

 

Our bank loans present a significant risk. To date, we have significantly relied upon debt financings to fund our operations. At August 31, 2013 (audited) and August 31, 2014 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,286,785 and $4,126,739, respectively. We also had bank overdrafts of $253,738 as of August 31, 2014. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the year ended August 31, 2014 was $78,660 and for year ended August 31, 2013 was $127,101. Such loans are primarily term loans with maturity dates ranging from November 2014 to October 2037. Approximately $2 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2014, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. This presents a significant risk to the Company in that the Company may not have the necessary cash to meet such payment obligations, or if it does, such payments may draw significantly on the Company’s cash position. Any of such events will likely have a materially detrimental effect on the Company.

 

If we are unable to attract and retain senior management and personnel, our operations, financial condition and prospects could be materially adversely affected. Our future success depends in part on the contributions of our management team and key personnel and our ability to attract and retain qualified new personnel. In particular, our success depends on the continuing services of Li Lai Ying, Tso Yin Yee, Pang Yiu Kwong and Tong Wing Shan. There is significant competition in our industry for qualified managerial, key personnel and we cannot assure you that we will be able to retain our key senior managerial and other personnel or that we will be able to attract, integrate and retain other such personnel that we may require in the future. If we are unable to attract and retain key personnel in the future, our business, operations, financial condition, results of operations and prospects could be materially adversely affected.

 

Our operating costs may increase. Costs in Hong Kong are generally expected to increase. If our labor costs or other operating costs increase and we cannot increase our services efficiency to offset any such increase or pass any such increase on to our customers, our business, financial condition and results of operations may be materially and adversely affected.

 

The industry in which we operate is highly competitive. Competition in the general field of business consulting is quite intense in Hong Kong. Although numerous established companies offer a variety of services to different customer segments, we consider competition in our focus market niche of small and medium business to be modest. Customers in this segment strongly rely on the consultant’s professional qualifications and the ability to come up with viable solutions in a timely and cost effective manner. Although we believe that we have unique strengths compared with our competitors, our industry is highly competitive and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors across the country, some of which have significantly greater financial, marketing and other resources than we have. New or existing competition that uses a business model that is different from our business model may put pressure on us to change so that we can remain competitive.

 

 
12

 

We may be subject to disputes with employees or other third parties. The businesses we operate involve dealings with both permanent and temporary employees as well as numerous third parties and customers, and we may be subject to claims or litigation involving such employees or third parties from time to time such as labor disputes and claims under business contracts with customers and others. We may also be subject to labor disputes, labor shortages or other impositions on our business operations, if we are unable to amicably resolve disputes with any such parties. We cannot assure you that any such disputes will not arise in the future and that the occurrence of one or multiple disputes will not have a material adverse effect on our business and financial condition.

 

Our insurance coverage may be insufficient to cover our business risks. We face various operational risks in connection with our business. However, we are not insured against certain risks. Any losses and liabilities for which we are not insured or our insurance coverage is inadequate to cover the entire liability may have a material adverse effect on our business, financial condition and results of operations. In the event that we incur substantial losses or liabilities and our insurance does not cover such losses or liabilities adequately or at all, our business, financial condition and results of operations may be materially and adversely affected.

 

We have extended significant loans in the past that did not generate income or have fixed repayment terms and which may have affected our ability to do business. During fiscal 2012 and 2013, we made significant advances of cash to one of our principal shareholders who is also the Company’s current Chief Financial Officer and daughter of our Chief Executive Officer and Chairman. Although all of such advances have been repaid to the Company, such advances may have detrimentally affected our ability to do business insofar that such advances represented a major portion of the Company’s then available cash. The advances to the related party were unsecured, non-interest bearing without fixed repayment terms. Although such advances are no longer being made to such related party, such advances did not generate income to the Company and may have detrimentally affected our ability to grow the business for the benefit of all of the shareholders.

 

We may be subject to a concentration of credit risk. During the year ended August 31, 2014, we had one customer which accounted for 15% of our total revenues and 35% of our total accounts receivable. No customer accounted for more than 10% total revenue during the year ended August 31, 2013. Although we believe our credit risk is somewhat limited due to a large customer base, there can be no assurance that we will not have a concentration of credit risk in fiscal 2015 and in future years similar to or greater than fiscal 2014. In such event, the loss of any such key customer or customers could significantly reduce our revenues, or detrimentally impact our revenues if any such key customer or customers experience financial difficulties.

 

Risks Related to Doing Business in Hong Kong

 

Substantially all of our revenues to date are derived from our operations in Hong Kong. Accordingly, our business, financial condition, results of operations and prospects are subject, to a significant extent, to risks of doing business in Hong Kong.

 

The Hong Kong legal system embodies uncertainties which could limit the legal protections available to you and us. The Hong Kong legal system is a civil law system based on written statutes. The overall effect of legislation over the past approximately 25 years has significantly enhanced the protections afforded to various forms of foreign investment in Hong Kong. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since Hong Kong administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.

 

If tax benefits currently available to us in Hong Kong were no longer available, our effective income tax rates for our Hong Kong operations could increase. To date, all our net income has been generated from our Hong Kong operations. Our net income could be adversely affected by any change in the current tax laws in Hong Kong.

 

 
13

 

Foreign Exchange Risk. While our reporting currency is the US Dollar, our revenues, costs and expenses are denominated in HKD. All of our assets are denominated in HKD. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US Dollars and HKD. If the HKD depreciates against the US Dollar, the value of our HKD revenues, earnings and assets as expressed in our US Dollar financial statements will decline. To date, we have not entered into any foreign exchange forward contracts or similar instruments to attempt to mitigate our exposure to change in foreign currency rates.

 

Future inflation in Hong Kong may inhibit our ability to conduct business profitably. In recent years, the Hong Kong economy has experienced periods of rapid expansion and high rates of inflation. High inflation may in the future cause the Hong Kong government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in Hong Kong, and thereby harm the market for our services.

 

It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in Hong Kong. Substantially all of our assets will be located in Hong Kong and our officers and our present directors reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. 

 

We may have difficulty establishing adequate management, legal and financial controls in Hong Kong, which could impair our planning processes and make it difficult to provide accurate reports of our operating results. Although we will be required to implement internal controls, we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in Hong Kong in these areas. As a result of these factors, we may experience difficulty in establishing the required controls, making it difficult for management to forecast its needs and to present the results of our operations accurately at all times. If we are unable to establish the required controls, market makers may be reluctant to make a market in our stock and investors may be reluctant to purchase our stock, which would make it difficult for you to sell any shares of common stock that you may own or acquire.

 

Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business. Banks and other financial institutions in Hong Kong do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, we may not have access to funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our employees and other creditors, we may be unable to continue in business.

 

Risks Relating to Our Common Stock and Our Status as a Public Company

 

We will incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements, including establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are unable to comply with these requirements. As a public company we will incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

 

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

 

Currently, none of our employees, including our Chief Financial Officer, who is responsible for preparing and supervising the preparation of our financial statements, have any formal training in U.S. GAAP and SEC rules and regulations. In that regard, we rely exclusively on our independent accountants and our outside counsel for advice with respect to U.S. GAAP and SEC rules and regulations. Therefore, there is a risk that our current of future financial statements may not be properly prepared in accordance with U.S. GAAP or that our current or future disclosures are not in compliance with SEC rules and regulations.

 

 
14

 

In addition, because of recent failures of Chinese businesses and losses sustained by public investors, we are likely to encounter a heightened level of scrutiny from regulators, including the Securities and Exchange Commission, diverting our management’s attention and increasing our costs.

 

Our management is not familiar with the United States securities laws. Our management is generally unfamiliar with the requirements of the United States securities laws, which could adversely impact our ability to comply with legal, regulatory, and reporting requirements of those laws. Our management may not be able to implement programs and policies in an effective and timely manner to adequately respond to such legal, regulatory and reporting requirements, including the establishment and maintenance of internal control over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Exchange Act, which are necessary to maintain public company status, and could result in investigations by the Securities and Exchange Commission, and other regulatory authorities that could be costly, divert management’s attention and disrupt our business, If we were to fail to fulfill those obligations, our ability to operate as a public company would be in jeopardy, in which event you could lose your entire investment in our company.

 

There is a limited public trading market for our common stock, which may have an unfavorable impact on our stock price and liquidity. There has been a limited trading market for our common stock in the past and there can be no assurance that a trading market in our shares of common stock will further develop and be sustained. There were no reported trades in our common stock during the fiscal years ended August 31, 2012 and 2013. The first reported trade in fiscal 2014 occurred on November 15, 2013. The trading market for securities of companies quoted on the OTCQB or other quotation systems is substantially less liquid than the average trading market for companies listed on a national securities exchange. The quotation of our shares on the OTCQB or other quotation system may result in a less liquid market available for existing and potential shareholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

 

Since our Certificate of Incorporation authorizes the issuance of two million shares of “blank-check” preferred stock, our Board of Directors will have authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stock holders and with the ability to adversely affect stockholder voting power and perpetuate the board's control over our company. Our Certificate of Incorporation authorizes our board of directors to issue up to 2,000,000 shares of preferred stock, of which none have been issued to date. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by stockholders. These terms may include preferences as to dividends and liquidation, voting rights, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

 

We may, in the future, issue additional shares of our common stock, which would reduce investors' percent of ownership and may dilute our share value. Our Certificate of Incorporation was recently amended to increase the number of shares of common stock which we are authorized to issue from 50,000,000 to 200,000,000 shares of common stock, of which 36,704,789 shares are issued and outstanding as of February 10, 2015. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

 

The price of our common stock may be adversely impacted by developments applicable to other Chinese companies. There has been substantial press regarding certain Chinese companies that have apparently engaged in frauds and deceptive practices resulting in significant losses to investors. Such activities and the resulting negative press has had a negative impact on the prices of the stocks of Chinese companies generally. There is no guarantee that such that such activities will not continue causing investors to avoid buying our stock. Such activities could have a depressive impact on the price of our common stock.

 

 
15

 

Increased scrutiny of Chinese companies by short-sellers. The fraudulent activities of certain Chinese issuers have encouraged analysts to investigate Chinese companies in an effort to discredit the disclosures in their public filings or otherwise uncover deceptive practices. If such analysts elect to investigate a company they will often short the stock and release materials disparaging the issuer or questioning the accuracy of its public disclosures. Given the current environment for Chinese stocks, if an analyst were to publish a negative article about us, it could cause an immediate and substantial decline in the price of our stock, regardless of the accuracy of the claims in the article.

 

The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings. The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

 

 

·

our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;

 

 

 

·

changes in financial estimates by us or by any securities analysts who might cover our stock;

 

 

·

speculation about our business in the press or the investment community;

 

 

 

·

significant developments relating to our relationships with our customers;

 

 

·

stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry;

 

 

 

·

customer demand for our services;

 

 

·

investor perceptions of our industry in general and our Company in particular;

 

 

 

·

the operating and stock performance of comparable companies;

 

 

·

general economic conditions and trends;

 

 

 

·

announcements by us or our competitors of new services, significant acquisitions, strategic partnerships or divestitures;

 

 

·

changes in accounting standards, policies, guidance, interpretation or principles;

 

 

 

·

loss of external funding sources;

 

 

·

sales of our common stock, including sales by our directors, officers or significant stockholders; and

 

 

 

·

additions or departures of key personnel.

 

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. Should this type of litigation be instituted against us, it could result in substantial costs to us and divert our management’s attention and resources.

 

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.

 

 
16

 

Recently adopted SEC rules prohibit a reverse acquisition company from listing on a national securities exchange until the company has been in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange for at least one complete fiscal year. Recently adopted SEC rules seek to improve the reliability of the reported financial results of reverse acquisition companies by requiring a pre-listing “seasoning period” during which the post-reverse acquisition public company must produce financial and other information in connection with its required SEC filings. The company also must maintain a requisite minimum share price for at least 30 of the most recent 60 trading days prior to the date of the initial listing application and the date of listing on any national securities exchange. By virtue of such rules it is unlikely that we will be eligible to list on a national securities exchange for at least one year following the Acquisition of Almonds Kisses BVI, and only if our stock trades above the requisite minimum price in accordance with the listing requirements of the applicable national securities exchange.

 

Item 1B. Unresolved Staff Comments.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 2. Properties.

 

As of January 26, 2015, the Company relocated in principal executive offices to 11/F., Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR under an operating lease which will expire in September 2017, with a fixed monthly rent expense of approximately $34,280 USD per month.  The Company previously maintained its principal executive offices at Units 2611-13A, 26/F, 113 Argyle Street, Mongkok, Kowloon, Hong Kong, SAR under an operating lease which had been extended to June 2015, with a fixed monthly rent expense of approximately $10,576 USD per month. We also maintain a branch office in Shenzhen, PRC located at 19A, Building 1, China Phoenix Building, Futian District, Shenzhen, PRC, and a branch office in Bangkok, Thailand located at Level 8 Zuellig House Building, No. 1-7, Silom Road, Silom Sub-District, Bangrak District, Bangkok 10500 Thailand. Management believes that the facilities are adequate for the Company’s current needs and for the foreseeable future.

 

In addition, Motion Tech Development Limited, a property holding company which has been a 100% owned subsidiary of the Company since August 2013, is the owner of a residential property located Tai Po which is an area in the New Territories of Hong Kong. The property is used as collateral for a banking facility.

 

Item 3. Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

 
17

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock is traded in the over-the-counter market and since July 19, 2013 has been quoted on the OTCQB, officially part of the OTC Market Group’s OTC Link quotation system, under the symbol “ADGS”. Prior thereto, our common stock was quoted under the symbol “LIPN”. For the periods indicated, the following table sets forth the high and low sales prices per share of common stock. There were no reported trades in our common stock during the fiscal year ended August 31, 2013. The first reported trade in fiscal 2014 occurred on November 15, 2013. The prices set forth in the table below may not be an accurate indicator of the value of the Company’s shares. These prices represent inter-dealer quotations and do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions.

 

  High     Low  
Year ended August 31, 2013        

 

 

 

 

 

Sept. 1, 2012 to Nov. 30, 2012

 

$

0.00

   

$

0.00

 

Dec. 1, 2012 to Feb. 28, 2013

 

$

0.00

   

$

0.00

 

March 1, 2013 to May 31, 2013

 

$

0.00

   

$

0.00

 

June 1, 2013 to Aug. 31, 2013

 

$

0.00

   

$

0.00

 

 

  High     Low  
Year ending August 31, 2014        

 

 

 

 

 

Sept. 1, 2013 to Nov. 30, 2013

 

$

0.60

   

$

0.30

 

Dec. 1, 2013 to Feb. 28, 2014

 

$

1.80

   

$

0.60

 

March 1, 2014 to May 31, 2014

 

$

1.85

   

$

0.10

 

June 1, 2014 to Aug. 31, 2014

 

$

3.99

   

$

1.00

 

 

 
18

 

Holders

 

As of February 10, 2015, there were approximately 87 record holders of our common stock.

 

Penny Stock Regulations

 

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

 

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

 

Rule 144

 

Prior to completion of the Transaction, we were considered a shell company. As a result, we are subject to the provisions of Rule 144(i) which limit reliance on Rule 144 by shareholders owning stock in a shell company. Under current interpretations, unregistered shares issued after we first became a shell company cannot be resold under Rule 144 until the following conditions were met:

 

 

¨

we ceased to be a shell company;

 

 

 

¨

we remained subject to the Exchange Act reporting obligations;

 

 

 

¨

we filed all required Exchange Act reports during the preceding 12 months; and

 

 

 

¨

at least one year had elapsed from the time we filed “Form 10 information” reflecting the fact that we had ceased to be a shell company.

 

Dividends

 

We have never paid a dividend on our Common Stock and we currently intend to retain earnings for use in our business to finance operations and growth. Any future determination as to the distribution of cash dividends will depend upon our earnings and financial position at that time and such other factors as the Board of Directors may deem appropriate.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

On August 28, 2014, our Board of Directors approved and adopted the ADGS Advisory, Inc. 2014 Equity Incentive Plan (the “2014 Plan”), subject to the approval by the stockholders in the extent required under Section 422 or 424 of the U.S. Internal Revenue Code or any other applicable laws, and authorized us to issue up to 7,500,000 shares of our Common Stock under the 2014 Plan (subject to adjustment to take account of stock dividends, stock splits, recapitalizations and similar corporate events). Holders of shares representing a majority of the voting securities of the Company have given their written consent to the approval of the 2014 Plan. The purpose of the 2014 Plan is to provide officers, other employees and directors of, and consultants and advisors to, us and our subsidiaries an incentive to (a) enter into and remain in our service or that of our subsidiaries, (b) enhance our long term performance and that of our subsidiaries, and (c) acquire a proprietary interest in us. Under the 2014 Plan, we will have the right to issue stock options, restricted stock, restricted stock units and other stock awards.

 

 
19

 

The Compensation Committee or another committee of our Board of Directors (or if there is no committee, the Board of Directors itself) will administer the 2014 Plan. Subject to the express limitations of the 2014 Plan, the Compensation Committee shall have authority in its discretion to determine the eligible persons to whom, and the time or times at which, awards may be granted, the number of shares, units or other rights subject to each award, the exercise, base or purchase price of an award (if any), the time or times at which an award will become vested, exercisable or payable, the performance goals and other conditions affecting an award, the duration of the award, and all other terms of the award.

 

To date, no awards have been granted under the 2014 Plan.

 

Information regarding equity compensations plans is set forth in the table below:

 

Plan category

  Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-average exercise price of outstanding options, warrants and rights     Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  
    (a)     (b)     (c)  

Equity compensation

plans approved by

security holders

 

-0-

   

-0-

   

7,500,000

 

 

 

 

 

Equity compensation

plans not approved

by security holders

   

-0-

     

-0-

     

-0-

 

 

 

 

 

Total

   

-0-

     

-0-

     

7,500,000

 

 

Recent Sales of Unregistered Securities

 

We sold the following equity securities during the fiscal years ended August 31, 2013 and 2014 that were not registered under the Securities Act of 1933, as amended:

 

On February 7, 2013, and as a condition to the closing of the Acquisition, we issued 750,000 shares of common stock to Wang Yu Long, a designee of Conqueror, pursuant to a subscription agreement dated January 5, 2013 between Conqueror and the Company whereby Conqueror agreed to accept 750,000 shares in exchange for funds advanced and other loans made by Conqueror to the Company prior to the date thereof in the amount of $160,038. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation S thereunder. Wang Yu Long is not a “US Person” (as defined in Rule 902 of Regulation S) and the certificate representing the shares issued has been endorsed with a restrictive legend consistent with that exemption.

 

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

 

During March 2014, the Company sold 1,400,000 shares of common stock to 12 investors for the purchase price of $0.30 per share or $420,000 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.

 

During April 2014, the Company sold 1,791,305 shares of common stock to 10 investors for the purchase price of $0.30 per share or $537,391.50 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.

 

 
20

 

During June 2014, the Company sold 21,500 shares of common stock to one investors for the purchase price of $0.30 per share or $6,450 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. The investor represented and warranted that he was a non-U.S. person within the meaning of Regulation S.

 

During August 2014, the Company sold 7,125,000 shares of common stock to 13 investors for the purchase price of $0.35 per share or $2,493,750 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.

 

Of such proceeds with regard to shares sold in fiscal 2014, $3,454,057 has been paid by such investors during fiscal 2014, leaving a subscription receivable due of $3,092,458 as of August 31, 2014. Of such amount, $64,515 (approximately HK $500,000) has been received subsequent to August 31, 2014 and prior to the issuance of this report.

 

Item 6. Selected Financial Data.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and notes to those financial statements for the years ended August 31, 2014 and 2013, that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

All amounts are in U.S. Dollars unless otherwise noted.

 

Company Overview

 

Unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer to the combined business of ADGS Advisory, Inc., formerly known as Life Nutrition Products, Inc., a Delaware corporation, and its direct and indirect wholly-owned subsidiaries, Almonds Kisses Limited (BVI), a British Virgin Islands company, ADGS Advisory Limited, a Hong Kong corporation, Vantage Advisory Limited, a Hong Kong corporation, Motion Tech Development Limited, a British Virgin Islands company, and TH Strategic Management Limited, a Hong Kong corporation, as well as ADGS Tax Advisory Limited, a Hong Kong corporation which is an 80% owned subsidiary, and Dynamic Golden Limited, a Hong Kong corporation which until November 19, 2013 was 30% owned by ADGS Tax Advisory Limited and has since been 30% owned by Almonds Kisses Limited (BVI). Pursuant to a Certificate of Amendment to the its Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, the Company changed its corporate name from “Life Nutrition Products, Inc.” to “ADGS Advisory, Inc.”.

 

We are primarily engaged in providing accounting, taxation, company secretarial, general corporate and consultancy services in Hong Kong.

 

On April 12, 2013, we acquired 100% of the issued and outstanding capital stock of Almonds Kisses Limited (BVI) (“Almonds Kisses BVI”) in exchange for 20,155,000 shares of our common stock, representing in the aggregate approximately 80.1% of our issued and outstanding shares of common stock.

 

 
21

 

Almonds Kisses BVI was incorporated on March 1, 2011 as a limited liability company in the British Virgin Islands. ADGS Advisory Limited (“ADGS Hong Kong”) is a Hong Kong corporation which was incorporated on April 28, 2011 and had been wholly owned by the same group of shareholders until being acquired by Almonds Kisses BVI pursuant to a reorganization completed in 2012 to prepare for the Transaction. Vantage Advisory Limited is a Hong Kong corporation which was incorporated on March 6, 2008 which has been wholly owned by Almonds Kisses BVI since January 2013. Motion Tech is a British Virgin Islands company which was incorporated on October 7, 2007 and has been wholly owned by Almonds Kisses BVI since August 2013. Motion Tech is a property holding company which owns a residential property. TH Strategic Management Limited is a Hong Kong corporation which was incorporated on March 16, 2010 which has also been wholly owned by Almonds Kisses BVI since October 2013. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company. Dynamic Golden Limited which is also a Hong Kong incorporated company, which was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI, owns an investment in residential real property located in Tuen Mun, New Territories, Hong Kong.

 

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

 

   

ADGS Advisory, Inc.

(formerly Life Nutrition Products, Inc.),

a Delaware corporation

   
         
   

     100%

   
         
   

Almonds Kisses Limited (BVI),

a British Virgin Islands company

   
         

     100%

     100%

     100% 

     100%

     30%

         

ADGS Advisory Limited

Vantage Advisory Limited,

T H Strategic Management

Motion Tech Development 

Dynamic Golden

a Hong Kong corporation a

Hong Kong corporation

Limited, a Hong Kong

Limited, a British Virgin Islands

Limited, a Hong Kong

   

corporation 

company

corporation

         

     80%

       
         

ADGS Tax Advisory Limited

       

a Hong Kong corporation

       

 

Critical Accounting Policies and Estimates

 

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

 

Basis of presentation

 

The accompanying consolidated financial statements are audited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these consolidated financial statements have been included. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States.

 

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

 

As both the Company and its subsidiaries, ADGS Hong Kong 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 prior periods are the assets and liabilities of the Company’s operating subsidiaries.

 

Certain reclassifications have been made to the comparative period amounts to conform with that of the current period.

 

 
22

 

Use of estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating to 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 years. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-live assets; valuation allowances for receivables, and realizable values for inventories. Accordingly, actual results could differ from those estimates.

 

Revenue recognition

 

The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.

 

(i) Revenue generates from providing accounting, taxation, company secretarial and consultancy services is recognized when persuasive evidence of an arrangement exists, the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. The Group generates its revenues from providing professional services under fixed-fee billing arrangements.

 

In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay a fixed-fee in monthly installments over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.

 

(ii) Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured.

 

(iii) The Company recognizes the management fee income when service is provided. Services include providing administration support service or accounting service to companies.

 

Intangible assets

 

The Company assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:

 

 

-

significant underperformance relative to historical or projected future operating results;

 

 

 

 

-

significant changes in the manner of use of the acquired assets or the strategy for our overall business;

 

 

 

 

-

identification of other impaired assets within a reporting unit;

 

 

 

 

-

disposition of a significant portion of an operating segment;

 

 

 

 

-

significant negative industry or economic trends;

 

The intangible assets are amortized using the straight line method over a period of 10 years.

 

Goodwill

 

In accordance with U.S. GAAP, the Company tests goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company reviews goodwill for impairment based on its identified reporting units, which are defined as reportable segments or groupings of businesses one level below the reportable segment level. In September 2011, the FASB issued guidance on testing goodwill for impairment. The guidance provides entities with an option to perform a qualitative assessment to determine whether further quantitative impairment testing is necessary.

 

In accordance with the guidance, the Company reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances made it more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, such estimates as projected business results, growth rates, the Company’s weighted-average cost of capital, royalty and discount rates.

 

 
23

 

Income taxes

 

The Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.

 

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.

 

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

 

The Company recognizes interest and penalty related to income tax matters as income tax expense. As of August 31, 2014 and August 31, 2013, there was no penalty or interest recognized as income tax expenses.

 

Economic and political risks

 

The major operations of the Company are conducted in Hong Kong, the PRC. Accordingly, the political, economic, and legal environments in Hong Kong, the PRC, as well as the general state of Hong Kong’s economy may influence the business, financial condition, and results of operations of the Company.

 

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

 

Recently issued accounting pronouncements

 

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360).” ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

 
24

 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The Company is currently evaluating the impact of adopting ASU 2014-12 on the Company's results of operations or financial condition.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements

 

Trends and Uncertainties

 

Insofar that our revenues are mainly derived from providing professional services to our clients under fixed-fee billing arrangements, the number of clients we have at any given time and the fees billed are the Company’s key uncertainties. The recent growth in revenues was primarily due to the acquisition of customer lists and client bases in 2011, 2013 and 2014; and, therefore, we cannot be certain that this growth represents a trend which will continue although we have recently made acquisitions and we plan to make additional acquisitions in the upcoming years and we are regularly exploring such opportunities which may benefit our business and increase our revenues. In the future, we expect that we will seek to purchase other customer lists and client bases as part of our overall growth strategy, although there can be no assurance that we will be able to do any of the foregoing on terms which will be acceptable to us.

 

Other key uncertainties include our high leverage and highly variable interest expense. To date, we have significantly relied upon debt financings to fund our operations. At August 31, 2013 (audited) and August 31, 2014 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,286,785 and $4,126,739, respectively. We also had bank overdrafts of $253,738 as of August 31, 2014. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the year ended August 31, 2014 was $129,738 and for year ended August 31, 2013 was $151,872. Such loans are primarily term loans with maturity dates ranging from November 2014 to October 2037. Approximately $2 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2014, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. See “Risk Factors” elsewhere in this report for further discussion of these uncertainties and others.

 

Principal Components of Our Income Statement

 

Revenue

 

Our revenue is derived from providing professional services to our clients under fixed-fee billing arrangements. The most significant factors that affect our revenue are number of clients and our fees billed. In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a pre-determined set of professional services. Generally, our client agrees to pay a fixed-fee every month over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.

 

 
25

 

Operating expenses

 

Our operating expenses consist of direct cost of revenue, general and administrative expenses.

 

Direct cost of revenue

 

Our direct cost of revenue primarily consists of commission paid, consultant fees, legal and professional fees, management fees, salaries, secretarial fees and sub-contractor fees.

 

General and administrative expenses

 

Our general and administrative expenses include advertising and exhibitions, computer fee, depreciation of property and equipment, motor vehicles, rent, rates and building management fee and other miscellaneous expenses related to our administrative activities.

 

Our operating expenses are positively correlated to our revenue, and with the anticipated expansion of our Company, we anticipate the absolute dollars of the operating expenses will increase accordingly.

 

Other comprehensive income

 

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

 

Year Ended August 31, 2014 compared to Combined Results for the Year Ended August 31, 2013

 

The following table presents the consolidated statements of operations of the Company for the year ended August 31, 2014 (“Y2014”) as compared to the year ended August 31, 2013 (“Y2013”).

 

    For the year ended August 31,
2014
    For the year ended August 31,
2013
 

Revenue

 

$

6,158,684

   

$

3,198,160

 

Less: Operating expenses

               

Direct cost of revenue

 

(2,985,443

)

 

(1,425,678

)

General and administrative expenses

 

(1,337,613

)

 

(842,932

)

Operating profit/(loss)

Other income

   

 1,835,628

18,677

     

929,550

2,494

 

Other expenses

 

(135,409

)

 

(154,947

)

Net profit/(loss)

   

1,718,896

     

777,097

 

Income tax expenses

 

(408,019

)

 

(152,300

)

Other comprehensive income/(loss)

   

239

   

(10,380

)

Total comprehensive income/(loss)

   

1,311,116

     

614,417

 

Comprehensive income attributable to non-controlling interests

   

20,316

     

22,813

 

Comprehensive income attributable to ADGS Advisory, Inc.

 

$

1,331,432

   

$

637,230

 

 

Revenue

 

Our business for the Y2014 expanded rapidly. We recorded revenues of $6.2 million for Y2014, representing an increase of $2.9 million as compared to the results of $3.2 million for Y2013. The increase was primarily due to the increase of revenue stream multi-disciplinary advisory services and a steady growth in accounting and corporate services.

 

 
26

 

General and administrative expenses

 

    For the year ended August 31,
2014
    For the year ended August 31,
2013
    %
change
 

Revenue

 

$

6,158,684

   

$

3,198,160

   

+93

%

Less: Operating expenses

                       

Direct cost of revenue

 

(2,985,443

)

 

(1,425,678

)

   

+109

%

General and administrative expenses

 

(1,337,613

)

 

(842,932

)

   

+59

%

Operating profit/(loss)

 

$

1,835,628

   

$

929,550

     

+97

%

 

The significant increase in direct cost of revenue is mainly caused by the increase in consultant fees and surveyor fees for the multi-disciplinary advisory services to our clients.

 

Other expense

 

Other expense represents the interest expense for the bank loans and overdraft of $129,738 and $151,872 in Y2014 and Y2013 respectively. The decrease in the amount is mainly caused by the decrease in bank overdrafts of $0.25m made to the Company in Y2014.

 

Other comprehensive income

 

Other comprehensive income represents the foreign currency translation gain of $239 and foreign currency translation loss of $10,380 in Y2014 and the Y2013 respectively.

 

Liquidity and Capital Resources

 

As of August 31, 2014, we had cash on hand of $95,811, which represented a decrease of $68,503 from $164,314 as of August 31, 2013, other current assets of $2,853,264, and other current liabilities of $2,683,273. Working capital was $265,802 and the ratio of current assets to current liabilities was 1.1 to 1 as of August 31, 2014.

 

As of August 31, 2014 we had long term debt (excluding the deferred revenue of $290,319 in 2014) of $4,223,569, which represented an increase of $1,205,300 from $3,018,269 excluding deferred revenue of $435,343 as of August 31, 2013; total assets of $8,794,562 as of August 31, 2014 representing an increase of $4,028,685 from $4,765,877 as of August 31, 2013. The ratio of long term debts to total assets was 0.5 to 1 as of August 31, 2014.

 

The following is a summary of cash provided by or used in each of the indicated type of activities during the year ended August 31, 2014 and 2013, respectively:

 

    For the year ended August 31,
2014
    For the year ended August 31,
2013
 

Cash provided by (used in):

       

Operating activities

 

$

(670,294

)

 

$

1,208,913

 

Investing activities

 

(1,914,293

)

 

(2,055,442

)

Financing activities

   

2,473,962

     

881,567

 

Effect of change of exchange rates

   

42,122

     

275

 

Cash, beginning of period

   

164,314

     

129,001

 

Cash, end of period

 

$

95,811

   

$

164,314

 

 

 
27

 

Net cash used in operating activities was $670,294 for the year ended August 31, 2014, as compared to net cash provided by operating activities of $1,208,913 for the year ended August 31, 2013. The decrease in fiscal 2014 was mainly due to a net profit of $1,331,194, plus accrued liabilities and other payables of $192,635 and income tax payable of $433,483, offset by accounts receivable of $(896,467), other receivables of $(1,842,599) and prepaid expenses of $(187,462). The increase in fiscal 2013 was mainly due to a net profit of $647,625, deferred revenue of $580,241, accrued liabilities and other payables of $192,075 and income tax payable of $152,300, offset by accounts receivable of $(564,561) and other receivables of $(130,786).

 

Net cash used in investing activities was $1,914,293 for the year ended August 31, 2014, as compared to net cash used in investing activities of $2,055,442 for the year ended August 31, 2013.  Such change in fiscal 2014 was mainly due to advances to third parties of $(841,368), acquisition of an intangible asset and subsidiary totaling $(670,719) and deposit for acquisition of a client list of $(257,928), compared to fiscal 2013 wherein cash used was primarily due to cash paid for property and equipment of $(1,935,864). 

 

Net cash provided by financing activities was $2,473,962 for the year ended August 31, 2014, as compared to net cash provided by financing activities of $881,567 for the year ended August 31, 2013.  Such increase in fiscal 2014 was mainly due to proceeds of bank loans of $2,992,990, proceeds from the issuance of stock of $365,133, advances received from a related party of $557,451 and repayment of advances made on behalf of related party of $418,658, offset by repayment of bank loans of $(1,154,689) and net increase in bank overdraft of $(490,316).  This compares to fiscal 2013 wherein net cash provided by financing activities was mainly due to repayment of related party advances of $4,655,559, advances received from related party of $750,445, proceeds of bank loans of $1,230,111 and net increase in bank overdraft of $744,077, offset by related party advances of $(4,831,702) and repayment of bank loans of $(1,483,361).  The advance to related party of $4,831,702 in fiscal 2013 was fully repaid during fiscal 2014.

  

Material investment activities

 

On August 20, 2014, the Company acquired 2% of the issued and outstanding capital stock of Elite Global Group Limited (incorporated in Hong Kong) (“Elite Global”) from one of the then two shareholders of Elite Global for the sum of approximately $2,000,000 (HK $15,000,000) payable by the transfer of certain receivables due to a subsidiary of the Company. Elite Global has entered into a Preliminary Development Agreement with Viacom Media Networks to construct and establish a new entertainment theme park in the PRC. Elite Global is expected to submit a development plan for Viacom’s approval and then obtain a license to operate the theme park. The Company is not aware of the proposed timeframe for completion of the foregoing. In addition, Elite Global is a party to a Joint Venture Agreement with Simson Giftware which operates and manufactures merchandise for theme stores in Taiwan and Hong Kong. Pursuant to the agreement with the seller of the shares, the Company retains the right to request the seller to buy back all or part of the shares purchased at $2,000,000 or such proportionate amount, if any, after August 20, 2015. In view of the potential from this business, the Company acquired such 2% stock interest in Elite Global and is looking for a satisfactory return in the near future.

 

The Company had bank loans with outstanding principal of $4.1 million as of August 31, 2014 and $2.3 million as of August 31, 2013. Summary of total bank loans is as follows:

 

Nature of loans

 

Terms of loans

  Outstanding loan amount  

Current annualized
interest rate

 

Collateral

         

Term loan

 

Ranging from 1 year to 25 years

 

$

4,126,739

 

Ranging from annual rate from 0.38% to 8.57%

 

Properties and personal guarantee from related parties and third parties

           
 

$

4,126,739

     

 

The valuations for the above collaterals on August 31, 2014 were approximately $5.3 million while the total outstanding loan amount was approximately $4 million.

 

 
28

 

The Company had assets held under capital leases, which represent leases of motor vehicle. The cost of motor vehicle under capital lease was $31,076 at August 31, 2014. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of August 31, 2014 are as follows:

 

    Amount  

Year ending August 31,

   

2015

 

$

11,676

 

2016

   

11,676

 

Thereafter

   

9,730

 

Total minimum lease payment

 

$

33,082

 

Less: Imputed interest

 

(1,252

)

Present value of net minimum lease payments

 

$

31,830

 

Less: Current maturities of capital leases obligations

 

(10,843

)

Long-term capital leases obligations

 

$

20,987

 

 

Material capital expenditure commitments

 

We anticipate that we will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. On July 30, 2014, we entered into a Customer List Purchase Agreement (the “July 2014 Purchase Agreement”) with Lau Kam George and Yung Chi Shing (collectively, the “Sellers”) pursuant to which we have agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong. In consideration for the acquisition of the customer list, we have agreed to pay the Sellers the sum of approximately $1.5 million (HK $12.0 million) and 5,000,000 shares of the common stock of the Company. Such amount is to be paid as follows: (i) approximately $258,000 (HK $2.0 million ) upon signing of the July 2014 Purchase Agreement which amount has been paid, (ii) approximately $387,000 (HK $3.0 million ) on or before March 30, 2015, and (iii) the balance of the purchase price of approximately $903,000 (HK $7.0 million ) in 18 monthly installments commencing one month after closing. The shares of common stock are to be issued at closing. The closing is expected to occur on or before March 30, 2015. Following the closing, the amount of the aggregate purchase price will be adjusted based upon revenues achieved in the 14 months period following the closing. Subsequent to the year ended August 31, 2014, and in January 2015, we paid half of the second installment described above.

 

Contractual Obligations

 

The following table sets forth information regarding the Company’s contractual payment obligations excluding the bank overdrafts of $0.25 million as of August 31, 2014.

 

    Payment due by period  

Contractual obligations

  Total     < 1 year     1 - 3 years     3 - 5 years     > 5 years  
                     

Borrowing:

                   

-Capital lease

 

$

33,082

   

$

11,676

   

$

21,406

   

$

-

   

$

-

 

-Bank loans

   

4,126,739

     

569,425

     

914,413

     

553,142

     

2,089,759

 

-Bank Overdraft

   

253,738

     

253,738

     

-

     

-

     

-

 

-Due to related party

   

663,011

     

663,011

     

-

     

-

     

-

 

-Loan from a related party

   

645,268

     

-

     

645,268

     

-

     

-

 

Operating lease obligation:

                                       

- Office rental

   

1,330,296

     

473,300

     

822,716

     

34,280

     

-

 

- Acquisition of a client base

   

1,290,306

     

638,701

     

651,605

     

-

     

-

 
 

$

8,342,440

   

$

2,609,851

   

$

3,055,408

   

$

587,422

   

$

2,089,759

 

 

 
29

 

Off-Balance Sheet Arrangement

 

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

 

We have not entered into any financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us.

 

We may be exposed to interest rate risk in relation to the bank loans we maintain. The interest rate risk is managed by the Directors of the Company on an ongoing basis with the primary objective of limiting the extent to which interest expense could be affected by adverse movement in interest rates. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s post-tax profit for the year ended August 31, 2014 would increase/decrease by $36,577 as compared with the combined post-tax profit for the year ended August 31, 2013.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 8. Financial Statements and Supplementary Data.

 

See the Financial Statements annexed to this report.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Effective as of June 23, 2014, the Company engaged UHY Vocation HK CPA Limited (“UHY HK”) as its principal independent accountants to audit the financial statements of the Company. UHY HK replaces Union Power HK CPA Limited (“Union Power HK”), which firm resigned as the principal independent accountants of the Company effective as of June 23, 2014. The decision to accept the resignation of Union Power HK and engage UHY HK as the Company’s principal independent accountants was approved by the Company’s Board of Directors.

 

During the Company’s two most recent fiscal years preceding the dismissal of the former accountants and any subsequent interim period preceding the date hereof, there were no disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountants, would have caused it to make reference to the subject matter of the disagreements in connection with its report.

 

During the Company’s two most recent fiscal years preceding the dismissal of the former accountants and any subsequent interim period preceding the date hereof, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

 

 
30

 

Item 9A. Controls and Procedures.

 

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2014, these disclosure controls and procedures were not effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

There have been no material changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

 

Currently, none of our employees, including our Chief Financial Officer, who is responsible for preparing and supervising the preparation of our financial statements, have any formal training in U.S. GAAP and SEC rules and regulations. In that regard, we rely exclusively on our independent accountants and our outside counsel for advice with respect to U.S. GAAP and SEC rules and regulations. Therefore, there is a risk that our current of future financial statements may not be properly prepared in accordance with U.S. GAAP or that our current or future disclosures are not in compliance with SEC rules and regulations.

 

Based on our evaluation under the frameworks described above and in light of the significant deficiency described above, our management has concluded that our internal control over financial reporting was not effective as of August 31, 2014. Management intends to mitigate the risk of such deficiency going forward by having our Chief Financial Officer and other personnel continue to work with our auditors and other outside advisors to ensure that our control processes and procedures are adequate and effective.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

 

Item 9B. Other Information.

 

Not applicable.

 

 
31

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Directors and Executive Officers

 

Set forth below are our present directors and executive officers. Note that there are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers serve at the discretion of the Board of Directors.

 

Name

 

Age

 

Position

 

Has Served as
Director Since

Li Lai Ying

 

58

 

Chairman, Chief Executive Officer, Secretary and Director

 

April 2013

           

Tso Yin Yee

 

39

 

Chief Operating Officer and Director

 

April 2013

           

Tong Wing Shan

 

37

 

Chief Financial Officer

 

--

           

Pang Yiu Kwong

 

51

 

Director

 

April 2013

           

Fu Kei Man Derek

 

32

 

Director

 

March 2014

           

Anderson Amanda

 

20

 

Director

 

September 2014

 

The following sets forth information about our directors and executive officers:

 

Li Lai Ying has been our Chairman of the Board, Chief Executive Officer, Secretary and a Director since April 2013. From April 2013 to November 2013, she was also our Chief Financial Officer. She has been Chief Executive Officer of ADGS Hong Kong since April 2011. She will be responsible for the strategic planning, overall operation of the Company and will oversee the financial reporting matters for the Company. Ms. Li has served as a Director of Rodney Engineering Company Limited (“Rodney”) since 1980 which company provides construction auditing and construction management services. Ms. Li holds overall responsibility of Rodney for daily operation and management. She has over 30 years experience in project management and construction auditing. Ms. Li’s leadership experience and knowledge were important qualifications considered in designating her for appointment to the Board. In addition, as the Chief Executive Officer, her presence on the Board will assist the Board in remaining informed regarding the operations of the Company and the progress on business plans.

 

Tso Yin Yee has been our Chief Operating Officer and a Director since April 2013. She has been Chief Operating Officer and a Director of ADGS Hong Kong since April 2011. She will oversee the daily business operations of the Company. Ms. Tso is a Practicing Certified Public Accountant in Hong Kong since January 2005 and received her bachelor’s degree in accountancy from the Hong Kong Polytechnic University. From May 2006 to March 2011, she was a Director of Honest Joy Accounting Service Co., Ltd. Ms. Tso is an experienced insolvency practitioner being appointed as Joint and Several Provisional Liquidator under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region for the period of 24 months from January 1, 2012 to December 31, 2013. This background and Tso Yin Yee’s experiences as a professional in accountancy and insolvency led to the conclusion that she should serve as a director of the Company.

 

Tong Wing Shan, Michelle has been our Chief Financial Officer since November 2013 and has been a director of Almonds Kisses BVI, the Company’s wholly owned subsidiary since its inception in March 2011, and a director of ADGS Advisory Limited, a Hong Kong corporation and the Company’s indirect wholly owned subsidiary, since its inception in April 2011. In addition, since 2005, she has been a Manager and Chief Financial Officer of Eugenics Add Centre for Education, an organization located in Hong Kong which provides tutoring services to primary and secondary school students. From 2000 to 2005, she was Finance Manager of Rodney Engineering Company Limited, a Hong Kong corporation which provides engineering services.

 

Pang Yiu Kwong has been our Director since April 2013. Mr. Pang is a practicing member of Hong Kong Law Society since November 1999 and has been an attorney with Michael Pang & Co. in Hong Kong since April 2004. Mr. Pang is an experienced insolvency practitioner being appointed as Joint and Several Provisional Liquidator under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region for the period of 24 months from January 1, 2012 to December 31, 2013. This background and Pang Yiu Kwong’s experiences as a professional in law and in insolvency work led to the conclusion that he should serve as a director of the Company.

 

 
32

 

Fu Kei Man Derek has been our Director since March 2014. Mr. Fu has been since June 2011 an Executive Director of Simsen International Corporation Limited, an investment holding company in Hong Kong. Since January 2008, he has worked as a foreign lawyer for Ng and Shum Solicitors & Notaries, located in Hong Kong. Mr. Fu is a practicing lawyer of the People’s Republic of China. Mr. Fu holds a bachelor degree of law from Chongqing University in the People’s Republic of China and a master degree in International Management from University of Reading in the United Kingdom.

 

Anderson Amanda has been our Director since September 2014. Ms. Anderson attended the N.T. Heung Yee Kuk Yuen Long Secondary School from 2007 to 2012 in Hong Kong and graduated in 2012.

 

There are no family relationships of any kind among our directors, executive officers, or persons nominated or chosen by us to become directors, except that Tong Wing Shan is the daughter of Li Lai Ying, the Company’s Chairman, Chief Executive Officer and Secretary. Li Lai Ying is also the mother of Tong Wing Yee, who along with Tong Wing Shan are the two largest shareholders of the Company. Both Tong Wing Shan and Tong Wing Yee are directors of the Company’s subsidiaries, Almonds Kisses BVI and ADGS Hong Kong, and Tong Wing Yee is also a director of ADGS Tax and Dynamic Golden Limited.

 

Involvement in Certain Legal Proceedings

 

To the knowledge of the Company, none of the directors, executive officers, or persons nominated or chosen by us to become directors has been personally involved in any legal proceedings as defined in Section 401 of Regulation S-K in the past ten years.

 

Audit Committee Financial Expert

 

We do not have an audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K, serving on our audit committee because we have no audit committee and are not required to have an audit committee because we are not a listed security.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than ten percent of the Company’s Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on the Company’s review of such forms received by it, or written representations from certain of such persons, the Company believes that, with respect to the year ended August 31, 2014, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that Fu Kei Man Derek filed his initial report of ownership late and filed two reports late relating to two transactions.

 

Code of Ethics

 

The Board of Directors has adopted a Code of Ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which is designed to promote honest and ethical conduct; full, fair, accurate, timely and understandable disclosure; and compliance with applicable laws, rules and regulations. A copy of the Code of Ethics will be provided to any person without charge upon written request to the Company at its executive offices, 11/F., Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR.

 

Insider Transactions Policies and Procedures

 

We do not currently have an insider transaction policy.

 

Board Committees

 

We do not have an audit, compensation, nominating or other committees of the Board of Directors.

 

 
33

 

Item 11. Executive Compensation.

 

The following summary compensation table set forth information concerning the annual and long-term compensation paid by the Company to its executive officers for services in all capacities to the Company for the fiscal years ended August 31, 2014 and August 31, 2013.

 

Summary Compensation Table

 

Name and Principal Position

  Year     Salary
($)
    Bonus
($)
    Stock Awards
($)
    Option Awards
($)
    Non-Equity Incentive Plan Compensation ($)     Nonqualified Deferred Compensation Earnings
($)
    All Other Compensation ($)     Total  

Li Lai Yang

Chief Executive Officer

 

2014

2013

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tso Yin Yee Chief Operating Officer

 

2014

2013

   

$

$

96,401

116,048

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

0

0

   

$

$

27,388

0

   

$

$

123,789

116,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tong Wing Shan

 

2014

   

$

0

   

$

0

   

$

0

   

$

0

   

$

0

   

$

0

   

$

0

   

$

0

 

 

Each of Ms. Li Lai Yang, Tso Yin Yee and Tong Wing Shan are employed as executive officers of the Company on an at-will basis, although it is expected that employment agreements may be entered into with each of them in the near term. Li Lai Yang became Chief Executive Officer in April 2013, Tso Yin Yee became Chief Operating Officer in April 2013 and Tong Wing Shan became Chief Financial Officer in November 2013.

 

Compensation of Directors

 

We did not pay any cash or other compensation to our directors for services as such for the fiscal years ended August 31, 2014 and August 31, 2013.

 

It has been agreed that Mr. Fu who serves as a non-executive, independent director will be paid approximately $26,000 (HK$200,000) per annum for his services as such which will be paid in either cash or shares of common stock (to be valued at the market price on the date of grant) as determined by the Company in its sole discretion.

 

Outstanding Equity Awards at Fiscal Year End

 

For the fiscal year ended August 31, 2014, no director or executive officer has received compensation from us pursuant to any compensatory or benefit plan.

 

Indebtedness of Management

 

See Part III, Item 13 “Certain Relationships and Related Transactions, and Director Independence” for information on shareholder advances with Tong Wing Shan. Other than the foregoing, no member of management was indebted to the Company during its last fiscal year.

 

 
34

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth, as of February 10, 2015, certain information with regard to the record and beneficial ownership of the Company’s Common Stock by (i) each stockholder owning of record or beneficially 5% or more of the Company’s Common Stock, (ii) each director of the Company, (iii) the Company’s Chief Executive Officer and other executive officers, if any, of the Company whose total compensation was in excess of $100,000 (the “named executive officers”), and (iv) all executive officers and directors of the Company as a group. Except as indicated in the footnotes to the table below, the address of each of the beneficial owners named in the table below is in care of our company, 11/F, Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table to our knowledge have sole voting and investment power with respect to all shares of securities shown as beneficially owned by them. The information in this table is based upon 36,704,789 shares of common stock outstanding as of February 10, 2015. Shares of common stock have one vote per share. 

 

Name of Beneficial Owner

Common Stock Beneficially Owned 

Percent
of Class(1)
 

 

Tong Wing Shan

 

9,069,750

   

24.7

%

             

Tong Wing Yee

   

5,069,750

     

13.8

%

                 

Li Lai Ying

 

0

(2)

   

0

%

     

 

         

Tso Yin Yee

   

655,037

     

1.8

%
                 

Pang Yiu Kwong

   

503,875

     

1.4

%
                 

Fu Kei Man Derek

   

2,000,000

     

5.4

%
                 

Anderson Amanda

   

0

     

0

               

All Directors & Officers as a Group (6 persons)

   

12,228,662

     

33.3

%

 

(1)

Based upon 36,704,789 issued and outstanding shares of common stock.

 

 

(2)

Does not include shares owned by Tong Wing Shan and Tong Wing Yee, daughters of Li Lai Ying.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Except as indicated below, since September 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: (i) in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years; and (ii) in which any director, executive officer, shareholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

 

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

 

As of August 31, 2011, there was $2,051,460 due to a related party representing amounts which had been previously advanced to the Company by Tong Wing Shan, one of the principal shareholders of the Company and current Chief Financial Officer of the Company. Such amount was paid to Tong Wing Shan in fiscal 2012. In addition, during fiscal 2012, advances were made by the Company to Tong Wing Shan in the amount of $4,539,543 of which $4,300,751 was repaid by Tong Wing Shan by August 31, 2012. As of August 31, 2012, the balance due from Tong Wing Shan was $241,036. At August 31, 2013, the balance due from Tong Wing Shan was $418,658 with $4,831,702 have been advanced during fiscal 2013 and $4,655,559 being repaid. No further advances were made in fiscal 2014 and the balance due at August 31, 2013 was repaid during fiscal 2014. The advances to the related party represented unsecured, non-interesting bearing loans without fixed repayment terms.

 

On August 30, 2013, Tong Wing Shan made an interest free, unsecured loan to the Company in the principal amount of $645,268 in order to provide the Company with certain funds needed to complete the purchase of the outstanding capital stock of Motion Tech Development Limited. Such loan is payable on August 30, 2017. In addition, as of August 31, 2014, Tong Wing Shan is due from the Company the principal amount of $663,011 for advances made by Tong Wing Shan to the Company which advances are interest free, unsecured and repayable on demand.

 

 
35

 

In addition, there were significant related party transactions during the year ended August 31, 2014 as follows:

 

Revenue:-

   

Accounting & corporate services

 

$

450,671

 

Multi-disciplinary Advisory

   

252,326

 
       
 

$

702,997

 

Direct cost of revenue:-

       

Accounting & corporate services

 

$

41,574

 

Corporate restructuring & insolvency

   

129,455

 
       
 

$

171,029

 

 

The balances associated with accounting & corporate services and corporate restructuring & insolvency primarily represent revenue and direct cost of revenue, which were the fees or expense charged by the Company's Chief Operating Officer and related parties as they are license holders of insolvency to execute the liquidation for the year ended August 31, 2014.

 

Director Independence

 

Our board of directors currently consists of five members. They are Li Lai Ying, Tso Yin Yee, Pang Yiu Kwong, Fu Kei Man Derek and Anderson Amanda and none of them is an independent director. We have determined that they are not independent directors using the general independence criteria set forth in the Nasdaq Marketplace Rules.

 

Item 14. Principal Accountant Fees and Services.

 

The following is a summary of the fees billed to us by the principal accountants (UHY Vocation HK CPA Limited and Union Power HK CPA Limited) to the Company for professional services rendered for the fiscal years ended August 31, 2014 and August 31, 2013:

 

Fee Category

  2014 Fees     2013 Fees  
         

Audit Fees

 

$

102,274

   

$

118,627

 

Audit Related Fees

 

$

0

   

$

7,994

 

Tax Fees

 

$

0

   

$

0

 

All Other Fees

 

$

0

   

$

0

 
               

Total Fees

 

$

102,274

   

$

126,621

 

 

Audit Fees. Consists of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.

 

Audit Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.

 

Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.

 

All Other Fees. Consists of fees for product and services other than the services reported above.

 

Pre-Approval Policies and Procedures

 

Prior to engaging its accountants to perform a particular service, the Company’s Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.

 

 
36

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

The following documents are filed as part of this report:

 

 

(1)

Financial Statements

 

 

 
 

 

Financial Statements are annexed to this report.

 

 

 
 

(2)

Financial Statement Schedules

 

 

 
 

 

No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the financial statements or notes thereto.

 

 

 
 

(3)

Exhibits

 

    Incorporated by Reference

Exhibit

 

Description

 

Filed
Herewith

 

Form

 

Filing Date

2.1

 

Share Exchange Agreement whereby Life Nutrition Products, Inc. merged with and into Life Nutrition Products, LLC on or about September 24, 2007

 

 

S-1

 

07/21/2008

         

3.1

 

Certificate of Incorporation

 

 

S-1

 

07/21/2008

         

3.2

 

Certificate of Amendment filed with the Secretary of State of Delaware effective on July 19, 2013

 

 

8-K

 

07/19/2013

         

3.3

 

Certificate of Amendment filed with the Secretary of State of Delaware effective on December 8, 2014

 

 

8-K

 

12/12 /2014

         

3.4

 

By-laws

 

 

S-1

 

07/21/2008

         

4.1

 

Specimen of Common Stock Certificate

 

 

S-1

 

07/21/2008

 

 
37

 

10.1

 

Share Exchange Agreement dated as of September 7, 2010 by and among Life Nutrition Products, Inc., Conqueror Group Limited and Acumen Charm Ltd.

 

 

8-K

 

09/08/2010

         

10.2

 

Share Exchange Agreement dated as of December 7, 2012 by and among Life Nutrition Products, Inc., ADGS Advisory Limited and ADGS Advisory (Holding) Limited

 

 

8-K

 

12/13/2012

         

10.3

 

Amendment to Share Exchange Agreement dated as of March 28, 2013

 

 

8-K

 

04/04/2013

         

10.4

 

Extension Agreement dated as of March 28, 2013

 

 

8-K

 

04/04/2013

         

10.5

 

Banking Facilities Agreement with Shanghai Commercial Bank dated September 26, 2012

 

 

8-K/A

 

08/30/2013

         

10.6

 

Banking Facilities Agreement with Hang Seng Bank dated June 20, 2012

 

 

8-K/A

 

08/30/2013

         

10.7

 

Lease Agreement (Financing Agreement) with Hitachi Capital (HK) Ltd. dated June 29, 2012

 

 

8-K/A

 

08/30/2013

         

10.8

 

Banking Facilities Agreement DBS Bank (Hong Kong) Limited dated July 31, 2012

 

 

8-K/A

 

08/30/2013

         

10.9

 

Agreement for Sale and Purchase of Shares of Vantage Advisory Limited dated January 4, 2013

 

 

8-K/A

 

08/30/2013

         

10.10

 

Agreement for Sale and Purchase of Shares dated October 20, 2013 between Li Hon Lun and Almonds Kisses Limited

 

 

8-K

 

10/23/2013

         

10.11

 

Customer List Purchase Agreement dated July 30, 2014 by and between ADGS Advisory Limited and Lau Kam George and Yur Chi Shing

 

 

8-K

 

08/04/2014

         

14.1

 

Code of Ethics

 

 

S-1

 

07/21/2008

         

21.1

 

List of Subsidiaries

 

x

   
         

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

 

x

   
         

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)

 

x

   
         

32.1

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

x

   
         

101

 

The following financial information from our Annual Report on Form 10-K for the year ended August 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements

 

x

   

 

 
38

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

  ADGS ADVISORY, INC.
(Registrant)
 
       
Dated: February 11, 2015 By: /s/ Li Lai Ying  
    Li Lai Ying  
    Chief Executive Officer  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated:

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Li Lai Ying

 

Chief Executive Officer, Chairman of the Board, Secretary and Director

 

 02/11/2015

Li Lai Ying

 

(Principal Executive Officer)

 

 

 

 

 

 

/s/ Tong Wing Shan

 

Chief Financial Officer

 

 02/11/2015

Tong Wing Shan

 

(Principal Financial Officer)

 

 

 

 

 

 

 

/s/ Tso Yin Yee

 

Chief Operating Officer and Director

 

 02/112015

Tso Yin Yee

 

 

 

 

 

 

 

 

 

/s/ Pang Yiu Kwong

 

Director

 

  02/11/2015

Pang Yiu Kwong

 

 

 

 

 

 

 

 

 

/s/ Fu Kei Man Derek

 

Director

 

 02/11/2015

Fu Kei Man Derek

 

 

 

 

 

 

 

 

 

/s/ Anderson Amanda

 

Director

 

 02/11/2015

Anderson Amanda

 

 

 

 

 

 
39

 

ADGS ADVISORY, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014 AND 2013

 

 
F-1

 

ADGS ADVISORY, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED 31 AUGUST, 2014 AND 2013

 

CONTENTS

 

Pages

 
       

Report of Independent Registered Public Accounting Firm

   

F-3

 
         

Consolidated Balance Sheets as of August 31, 2014 and 2013

   

F-4

 
         

Consolidated Statements of Operations for the years ended August 31, 2014 and 2013

   

F-5

 
         

Consolidated Statements of Comprehensive Income for the years ended August 31, 2014 and 2013

   

F-6

 
         

Consolidated Statement of Changes in Stockholders’ Equity for years ended August 31, 2014 and 2013

   

F-7

 
         

Consolidated Statements of Cash Flows for the years ended August 31, 2014 and 2013

   

F-8 - F-9

         

Notes to the Consolidated Financial Statements

   

F-10 - F-42

 

 

 
F-2

 

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

 

TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF

ADGS ADVISORY, INC.

 

We have audited the accompanying consolidated balance sheets of ADGS Advisory, Inc. (collectively the “Company”) as of August 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, statement of changes in stockholders’ equity, and cash flows for the years ended August 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits 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 consolidated 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 audits 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 Company’s 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide 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 ADGS Advisory, Inc. as of August 31, 2014 and 2013 and the consolidated results of its operations and its consolidated cash flows for the years ended August 31, 2014 and 2013, 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, People Republic of China

February 10, 2015

 

 
F-3

 

ADGS ADVISORY, INC.

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

 

   

August 31,
2014

   

August 31,
2013

 

Assets

           
             

Current assets

           

Cash

 

$

95,811

   

$

164,314

 

Restricted cash

   

258,968

     

129,312

 

Accounts receivable

   

1,461,876

     

564,773

 

Advance to third parties

   

841,803

     

130,835

 

Due from a related party

   

-

     

418,658

 

Other receivables and prepaid expenses

   

290,617

     

64,071

 

Total current assets

   

2,949,075

     

1,471,963

 
                 

Non-current assets

               

Property and equipment, net

   

1,999,545

     

2,088,690

 

Equity-method investment

   

357,870

     

371,096

 

Intangible assets

   

1,048,160

     

793,840

 

Other investment

   

1,935,459

     

-

 

Goodwill

   

153,128

     

-

 

Deposit paid for acquisition of a client list

   

258,061

     

-

 

Utility and other deposits

   

93,264

     

40,288

 

Total non-current assets

   

5,845,487

     

3,293,914

 
                 

Total assets

 

$

8,794,562

   

$

4,765,877

 
                 

Liabilities and stockholders' equity

               
                 

Current liabilities

               

Bank overdraft

 

$

253,738

   

$

744,077

 

Assets held under capital lease

   

10,843

     

23,775

 

Accrued liabilities and other payables

   

411,044

     

218,242

 

Due to a related party

   

663,011

     

-

 

Deposit received

   

43,942

     

-

 

Deferred revenue

   

145,159

     

145,114

 

Income tax payable

   

586,111

     

152,357

 

Bank loans – current portion

   

569,425

     

107,548

 

Total current liabilities

   

2,683,273

     

1,391,113

 
                 

Non-current liabilities

               

Assets held under capital lease, net of current portion

   

20,987

     

88,306

 

Deferred revenue, net of current portion

   

290,319

     

435,343

 

Bank loans, net of current portion

   

3,557,314

     

2,179,237

 

Loan from a related party

   

645,268

     

750,726

 

Total non-current liabilities

   

4,513,888

     

3,453,612

 
                 

Total liabilities

   

7,197,161

     

4,844,725

 
                 

Commitments and contingencies

               
                 

Stockholders’ equity

               

Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding

   

-

     

-

 

Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 35,337,805 shares issued and outstanding as of August 31, 2014 and 25,000,000 shares issued and outstanding as of August 31, 2013

   

3,534

     

2,500

 

Subscription receivable

   

(3,092,458

)

   

-

 

Additional paid in capital

   

3,454,057

     

(2,500

)

Retained earnings

   

1,399,062

     

67,868

 

Accumulated other comprehensive loss

   

(10,126

)

   

(10,364

)

Total ADGS Advisory, Inc. stockholders’ equity

   

1,754,069

     

57,504

 
                 

Non-controlling interest

   

(156,668

)

   

(136,352

)

                 

Total equity

   

1,597,401

     

(78,848

)

                 

Total liabilities and stockholders’ equity

 

$

8,794,562

   

$

4,765,877

 

 

See notes to consolidated financial statements.

 

 
F-4

 

ADGS ADVISORY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN US DOLLARS)

 

   

Year ended August 31

 
   

2014

   

2013

 
                 

Revenue

 

$

6,158,684

   

$

3,198,160

 
                 

Direct cost of revenue

   

(2,985,443

)

   

(1,425,678

)

Gross profit

   

3,173,241

     

1,772,482

 
                 

General and administrative expenses

   

(1,337,613

)

   

(842,932

)

                 

Operating income

   

1,835,628

     

929,550

 
                 

Other income

   

18,677

     

2,494

 

Interest expenses

   

(135,409

)

   

(154,947

)

                 

Profit before income taxes

   

1,718,896

     

777,097

 
                 

Less: Income tax expense

   

(408,019

)

   

(152,300

)

                 

Net profit before allocation of non-controlling interest

 

$

1,310,877

   

$

624,797

 
                 

Net loss attributable to non-controlling interest

   

20,317

     

22,828

 
                 

Net income attributable to common stockholders

 

$

1,331,194

   

$

647,625

 
                 

Earnings per share

               

- Basic and diluted

 

$

0.05

   

$

0.05

 
                 

Weighted average common shares outstanding

               

- Basic and diluted

   

26,342,404

     

12,252,562

 

 

See notes to consolidated financial statements.

 

 
F-5

  

ADGS ADVISORY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

( IN US DOLLARS)

 

   

Year ended August 31

 
   

2014

   

2013

 
             

Net income

 

$

1,310,877

   

$

624,797

 
                 

Other comprehensive income/(loss)

               

Foreign currency translation adjustment

   

239

     

(10,380

)

                 

Add: Comprehensive loss attributable to non-controlling interests

   

20,316

     

22,813

 
                 

Comprehensive income attributable to ADGS Advisory, Inc.

 

$

1,331,432

   

$

637,230

 

 

See notes to consolidated financial statements.

 

 
F-6

 

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(IN US DOLLARS)

  

 

Preferred shares with US$0.0001 Par Value

Common Stock, with US$0.0001 Par Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

Amount

Number of Shares

Amount

Additional paid-in capital Amount

 

Subscription receivable

Accumulated Other Comprehensive (loss)/income

Retained Earnings

 

Non-controlling Interest

 

Total Equity

 

Balance as of August 31, 2012

   

-

     

-

     

4,095,000 

   

$

410

   

$

(410

)

 

$

-

   

$

31

   

$

(579,757

)

 

$

(113,539

)

 

$

(693,265

)

Shares issued to settle notes payable and accrued liabilities as part of recapitalization during April 2013

   

-

     

-

     

750,000

     

75

     

(75

)

   

-

     

-

     

-

     

-

     

-

 

Shares issued to Almond Kisses shareholders

   

-

     

-

     

20,155,000

     

2,015

     

(2,015

)

   

-

     

-

     

-

     

-

     

-

 

Net profit/(loss)

   

-

     

-

     

-

     

-

     

-

     

-

     

-

     

647,625

     

(22,828

)

   

624,797

 

Foreign translation gain/(loss)

   

-

     

-

     

-

     

-

     

-

     

-

     

(10,395

)

   

-

     

15

     

(10,380

)

                                                                                 

Balance as of August 31, 2013

   

-

     

-

     

25,000,000

   

$

2,500

   

$

(2,500

)

 

$

-

   

$

(10,364

)

 

$

67,868

   

$

(136,352

)

 

$

(78,848

)

Common stock issued

   

-

     

-

     

10,337,805

     

1,034

     

3,456,557

     

(3,092,458

)

   

-

     

-

     

-

     

365,133

 

Net profit/(loss)

   

-

     

-

     

-

     

-

     

-

     

-

     

-

     

1,331,194

     

(20,317

)

   

1,310,877

 

Foreign translation gain

   

-

     

-

     

-

     

-

     

-

     

-

     

238

     

-

     

1

     

239

 

Balance as of August 31, 2014

   

-

     

-

     

35,337,805

   

$

3,534

   

$

3,454,057

   

$

(3,092,458

)

 

$

(10,126

)

 

$

1,399,062

   

$

(156,668

)

 

$

1,597,401

 

 

See notes to consolidated financial statements.

 

 
F-7

 

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS) 

 

   

For the year ended August 31,

 
   

2014

   

2013

 

Cash flows from operating activities:

           
 

Net income

 

$

1,331,194

   

$

647,625

 
 

Add: Net loss attributable to non-controlling interest

   

(20,317

)

   

(22,828

)

       

1,310,877

     

624,797

 

Adjustments to reconcile net income to net cash provided by operating activities:

               
 

Depreciation of property and equipment

   

110,654

     

50,475

 
 

Bank overdraft interest expenses

   

51,078

     

24,771

 
 

Bank loan interest expenses

   

78,660

     

127,101

 
 

Capital lease interest expenses

   

5,284

     

3,075

 
 

Amortization of intangible assets

   

222,946

     

180,519

 
 

Loss on equity-method investment

   

10,912

     

10,911

 
 

Deferred revenue

   

(145,085

)

   

580,241

 
 

(Gain)/loss on disposal of fixed assets

   

(5,599

)

   

7,504

 
 

Bank interest income

   

(594

)

   

(321

)

Changes in assets and liabilities:

               
 

Account receivables

   

(896,467

)

   

(564,561

)

 

Other receivables

   

(1,842,599

)

   

(130,786

)

 

Utility and other deposits

   

(52,936

)

   

(3,765

)

 

Prepaid expenses

   

(187,462

)

   

(45,423

)

 

Deposit received

   

43,919

     

-

 
 

Accrued liabilities and other payables

   

192,635

     

192,075

 
 

Income tax payable

   

433,483

     

152,300

 

Net cash (used in)/provided by operating activities

   

(670,294

)

   

1,208,913

 
                 

Cash flows from investing activities:

               
 

Cash paid for property and equipment

   

(85,229

)

   

(1,935,864

)

 

Sale proceeds of property and equipment

   

69,906

     

9,413

 
 

Advance to third parties

   

(841,368

)

   

-

 
 

Net increase in restricted cash

   

(129,549

)

   

(129,312

)

 

Acquisition of an intangible asset

   

(154,757

)

   

-

 
 

Acquisition of a subsidiary (See note a)

   

(515,962

)

   

-

 
 

Deposit paid for acquisition of a client list

   

(257,928

)

   

-

 
 

Bank interest income

   

594

     

321

 

Net cash used in investing activities

   

(1,914,293

)

   

(2,055,442

)

                 

Cash flows from financing activities:

               
 

Proceeds from issue of stock

   

365,133

     

-

 
 

Advances made on behalf of a related party

   

-

     

(4,831,702

)

 

Proceeds from repayment of advances made on behalf of a related party 

   

418,658

     

4,655,559

 
 

Advance received from a related party

   

557,451

     

750,445

 
 

Proceeds from bank loans

   

2,992,990

     

1,230,111

 
 

Repayment of bank loans

   

(1,154,689

)

   

(1,483,361

)

 

Repayment of capital lease

   

(80,243

)

   

(28,615

)

 

Net increase in bank overdraft

   

(490,316

)

   

744,077

 
 

Bank overdraft interest expenses

   

(51,078

)

   

(24,771

)

 

Bank loan interest expenses

   

(78,660

)

   

(127,101

)

 

Capital lease interest expenses

   

(5,284

)

   

(3,075

)

Net cash provided by financing activities

   

2,473,962

     

881,567

 

Net (decrease)/increase in cash

   

(110,625

)

   

35,038

 

Effect on change of exchange rates on cash

   

42,122

     

275

 

Cash as of Beginning of year

   

164,314

     

129,001

 

Cash as of End of year

 

$

95,811

   

$

164,314

 

   

 
F-8

 

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS) 

 

   

For the year ended August 31

 

Supplemental disclosures of cash flow information

 

2014

   

2013

 

Cash paid during the year for:

           
 

Capital lease additions

 

$

-

   

$

126,006

 
 

Bank overdraft interest paid

 

$

51,078

   

$

24,771

 
 

Bank loan interest paid

 

$

78,660

   

$

127,101

 
 

Capital lease interest paid

 

$

5,284

   

$

3,075

 
                   

Non-cash transaction during the year:

               
 

Repayment made from due from a related party

 

$

105,690

   

$

-

 
 

Repayment made to loan from a related party

 

$

(105,690

)

 

$

-

 
 

Consideration of other investment paid by setting off the other receivables

 

$

1,934,460

   

$

-

 

 

a. Acquisition of a subsidiary

 

   

For the year ended 31 August 2014

 
   

Assets/(liabilities)

 

Cash

 

$

16,189

 

Account receivables

   

89,685

 

Accruals and other payables

   

(17,544

)

Tax payables

   

(25,469

)

Due to a related party

   

(22,504

)

Intangible asset

   

322,477

 
     

362,834

 

Goodwill

   

153,128

 

Consideration

 

$

515,962

 
         

Satisfied by: Cash consideration

 

$

515,961

 
Issue of ordinary share    

1

 

 

 

$

515,962

 

 

See notes to consolidated financial statements.

 

 
F-9

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

1.

Description of business and organization

   
 

Nature of operations

   
 

ADGS Advisory, Inc. (“the Company” or “ADGS”) was incorporated in the State of Delaware in September 2007 under the name Life Nutrition Products, Inc. Pursuant to a Certificate of Amendment to its Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, the Company changed its corporate name from “Life Nutrition Products, Inc.” to “ADGS Advisory, Inc.”.

   
 

On December 7, 2012, the Company entered into a share exchange agreement (the “Original Exchange Agreement”) with ADGS Advisory Limited, a Hong Kong corporation (“ADGS Hong Kong”) and ADGS Advisory (Holding) Limited, a British Virgin Islands corporation (“ADGS Holding”). Pursuant to the Original Exchange Agreement, at the closing of the transaction contemplated thereunder (the “ADGS Transaction”), the Company agreed to acquire 100% of the issued and outstanding capital stock of ADGS Hong Kong, making ADGS Holding a wholly-owned subsidiary of the Company. On March 28, 2013, the Company entered into an amendment (the “Amendment”) to the Original Exchange Agreement (the Original Exchange Agreement, as amended is referred to herein as the “Exchange Agreement”) pursuant to which the Company agreed to acquire all of the outstanding shares of Almonds Kisses Limited (BVI), a British Virgin Islands company (“Almonds Kisses BVI”), from the eight shareholders of Almonds Kisses BVI (the “Shareholders”), instead of the shares of ADGS Holding, on the same terms and conditions set forth in the Exchange Agreement. Almonds Kisses BVI is the owner of 100% of the issued and outstanding capital stock of ADGS Hong Kong. The Original Exchange Agreement incorrectly indicated that such owner was ADGS Holding which error was corrected in the Amendment.

   
 

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

   
 

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

 

 
F-10

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

 

1.

Description of business and organization (…../Cont’d)

   
 

Nature of operations (…../Cont’d)

   
 

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

   
 

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

   
 

Reorganization

   
 

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

 

 
F-11

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

1.

Description of business and organization (…/Cont’d)

   
 

Details of the Company’s subsidiaries 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

             

Almonds Kisses Limited “Almonds Kisses”

 

British Virgin Island
March 1, 2011

 

100%

 

Holding company

             

ADGS Advisory Limited “ADGS Hong Kong”

 

Hong Kong, People's Republic of China (“PRC”)

April 28, 2011

 

100% (though Almonds Kisses)

 

Engage in providing accounting, taxation, company secretarial, and consultancy services.

             

ADGS Tax Advisory Limited

“ADGS Tax”

 

Hong Kong, PRC

March 17, 2003

 

80% (through ADGS Hong Kong)

 

 

Holding company

 

 

 

 

 

Dynamic Golden Limited

“Dynamic”

Hong Kong, PRC

April 16, 2004

30% (through ADGS Tax, until November 19, 2013 and through Almonds Kisses thereafter)

Property holding company

             

Vantage Advisory Limited “Vantage”

 

Hong Kong, PRC

March 6, 2008

 

100% (though Almonds Kisses effective on January 4, 2013)

 

Engage in providing accounting, taxation, company secretarial, and consultancy services.

             

Motion Tech Development Limited

“Motion Tech”

 

British Virgin Islands

October 3, 2007

 

100% (through Almonds Kisses effective on August 29, 2013)

 

Property holding company

             

T H Strategic Management Limited

“T H Strategic”

 

Hong Kong, PRC

March 16, 2010

 

100% (though Almonds Kisses effective on October 20, 2013)

 

Engage in providing accounting, taxation, company secretarial, and consultancy services.

 

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

 

 
F-12

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

1.

Description of business and organization (…/Cont’d)

   
 

On March 19, 2014, the Company issued 1,400,000 shares to twelve investors for the purchase of shares of Common Stock of the Company at $0.30 each with total proceeds of $420,000. On April 15, 2014, another 1,290,000 shares of Common Stock at $0.30 each were issued to one shareholder with proceed of $387,000. On April 29, 2014, another 501,305 shares of Common Stock at $0.30 each were issued to another nine shareholders with proceed of $150,392. On June 30, 2014, another 21,500 shares of Common Stock at S0.30 each were issued to one shareholder with proceed of $6,450. Further 7,125,000 shares of Common Stock at $0.35 each were issued to another twelve shareholders on August 30, 2014, with proceed of $2,493,750. As at August 31, 2014, there was $3,092,458 in total of proceed not yet received from the shareholders.

   
 

Subsequent to the year ended August 31, 2014, 75,000 shares of Common Stock were issued to one shareholder for services rendered; 58,600 shares of Common Stock at $.070 each were issued to one investor with proceeds of $41,020; 187,000 shares of Common Stock at $0.55 each were issued to two investors with proceeds of $102,850; 846,384 shares of Common Stock were issued to two shareholders for services rendered; and, 200,000 shares of Common Stock at $0.50 each were issued to four investors with proceeds of $100,000.

 

2.

Summary of significant accounting policies

   
 

Basis of presentation

   
 

These consolidated financial statements are audited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these consolidated financial statements have been included. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States.

   
 

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

   
 

As both the Company and its subsidiaries, ADGS Hong Kong 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 prior periods are the assets and liabilities of the Company’s operating subsidiaries.

   
 

Certain reclassifications have been made to the comparative period amounts to conform with that of the current period.

   
 

Use of estimates

   
 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating to 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 years. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-live assets; valuation allowances for receivables, and realizable values for inventories. Accordingly, actual results could differ from those estimates.

 

 
F-13

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Foreign currency translation

   
 

The Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The subsidiaries within the Company maintain their books and records in their respective functional currency, Hong Kong dollars (“HK$”), being the lawful currency in Hong Kong. Assets and liabilities of the subsidiaries are translated from H.K. Dollars into U.S. Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and comprehensive income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income included in the stockholders’ equity section of the balance sheets. The exchange rates used to translate amounts in HKD into U.S. Dollars for the purposes of preparing the consolidated financial statements are as follows:

 

   

August 31,
2014

 

 August 31,
2013

         

Balance sheet items, except for equity accounts

HK$7.7501=$1

 

HK$7.7525=$1

         

Items in statements of income and cash flows

HK$7.7541=$1

 

HK$7.7554=$1

 

Revenue recognition

 

The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.

 

 

(i)

Revenue generates from providing accounting, taxation, company secretarial and consultancy services is recognized when persuasive evidence of an arrangement exists, the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. The Group generates its revenues from providing professional services under fixed-fee billing arrangements.

     
   

In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay a fixed-fee in monthly installments over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.

     
 

(ii)

Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured.

     
 

(iii)

The Company recognizes the management fee income when service is provided. Services include providing administration support service or accounting service to companies.

 

 
F-14

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Direct cost of revenue

   
 

Direct costs of revenues generated from providing accounting, taxation, company secretarial and consultancy services consists primarily of billable employee compensation and related payroll benefits, the cost of consultants assigned to revenue generating activities and direct expenses billable to clients. Direct cost of revenues does not include an allocation of overhead costs.

   
 

Direct costs from providing consultancy service for slope inspections under fixed price contracts are recognized, as the related contact costs are incurred.

   
 

Cash

   
 

Cash represents cash in banks and cash on hand.

   
 

The Group considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Substantially all of the cash deposits of the Group are held with financial institutions located in the Hong Kong, PRC. Management believes these financial institutions are of high credit quality. The group held no cash equivalents at August 31, 2014.

   
 

Restricted cash

   
 

Restricted cash represents cash in banks were restricted and deposited in certain banks as security for installment loans payable to the banks.

   
 

Account receivables

   
 

Account receivables are recorded at invoiced amounts, net of allowances for doubtful accounts and discounts. The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing accounts receivable. Management determines the allowance based on historical write-off experience, customer specific facts and economic conditions. The Group historically has been able to collect all of its receivable balances.

   
 

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Group does not have any off-balance-sheet credit exposure to its customers.

   
 

Other receivables and advance to a third parties

   
 

Other receivables represent non-trade receivables from non-related third parties, and are recognized initially at fair value.

   
 

Advance to third parties are recorded as loan advances to non-related third parties for a potential investment opportunity. Outstanding balances are reviewed for collectability.

   
 

The advances are non-interest bearing, unsecured and shall be repaid within the next twelve months.

 

 
F-15

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Deferred revenue

   
 

The Company entered into a contract with a third party to provide corporate advisory and consulting services. The agreement has a fixed term of four years, and is renewable upon maturity. These fees are deferred and are amortized to income as earned over the term of the agreement. Deferred revenue that will be recognized in next fiscal year is classified within current liabilities.

   
 

Property and equipment

   
 

Property and equipment are recorded at cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as incurred; major renewals and improvements that extend the lives or increase the capacity of plant assets are capitalized.

   
 

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the reporting period of disposition.

   
 

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets after taking into account their respective estimated residual value.

   
 

The estimated useful lives of the assets are as follows:

 

   

 Estimated Life

Property held for sale and used

 

Over the unexpired term of the lease

Leasehold improvement

 

5 years

Furniture and fixtures

 

5 years

Office equipment

 

5 years

Motor vehicles

 

5 years

 

Equity-method investment

 

Affiliated companies, in which the Company has significant influence, but not control, are accounted for equity-method investment. Equity-method investment adjustments include the Company’s proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, adjustments to recognize certain differences between the Company’s carrying value and the Company’s equity in net assets of the investee at the date of investment, impairments, and other adjustments required by the equity method. Gain or losses are realized when such investments are sold.

 

 
F-16

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Non-controlling interest

   
 

Non-controlling interests represents the 20% interest in ADGS Tax not owned by Almonds Kisses.

   
 

Intangible assets

   
 

The Group assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:

 

 

-

significant underperformance relative to historical or projected future operating results;

     
 

-

significant changes in the manner of use of the acquired assets or the strategy for our overall business;

     
 

-

identification of other impaired assets within a reporting unit;

     
 

-

disposition of a significant portion of an operating segment;

     
 

-

significant negative industry or economic trends;

 

The intangible assets are amortized using the straight line method over a period of 10 years.

 

Goodwill

 

In accordance with U.S. GAAP, the Company tests goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company reviews goodwill for impairment based on its identified reporting units, which are defined as reportable segments or groupings of businesses one level below the reportable segment level. In September 2011, the FASB issued guidance on testing goodwill for impairment. The guidance provides entities with an option to perform a qualitative assessment to determine whether further quantitative impairment testing is necessary.

 

In accordance with the guidance, the Company reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances made it more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, such estimates as projected business results, growth rates, the Company’s weighted-average cost of capital, royalty and discount rates.

 

 
F-17

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Other investment

   
 

Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Consolidated Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Consolidated Statement of Operations. If circumstances suggest that the value of the Investee company has subsequently recovered, such recovery is not recorded.

   
 

When a cost method Investee company initially qualifies for use of the equity method, the Company’s carrying value is adjusted for the Company’s share of the past results of the Investee’s operations. Therefore, prior losses could significantly decrease the Company’s carrying value in that Investee company at that time.

   
 

Other investment represents a 2% holding of ordinary shares of a company incorporated in Hong Kong. The Company acquired the other investment which is initially measured at cost (i.e., the purchase price). The other investment is subsequently carried at cost less accumulated impairment losses. When investment is retired or disposed of, the cost and accumulated impairment losses are removed from the accounts, and any resulting gains or losses are included in income in the reporting period of disposition.

   
 

The Company follows Subtopic 325-20 of the FASB Accounting Standards Codification to account for its ownership interest in non-controlled entities, particularly foreign. Under ASC 325-20, investments of this nature are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the investee subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

   
 

Impairment of long-lived assets

   
 

The Company evaluates when events or circumstances indicate that the carrying amount of long-lived assets to be held and used might not be recoverable, the expected future undiscounted cash flows from the assets are estimated and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash flows was less than the carrying amount of the assets, an impairment loss would be recorded. The impairment loss would be measured on a location by location basis by comparing the fair value of the asset with its carrying amount. Long-lived assets that are held for disposal are reported at the lower of the assets’ carrying amount or fair value less costs related to the assets’ disposition. No impairment has been recognized.

   
 

Assets under capital lease

   
 

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Depreciation expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.

 

 
F-18

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Comprehensive income

   
 

Comprehensive income includes net income and also considers the effect of other changes to stockholders' equity that are not included in the determination of net income, but rather are reported as a separate component of stockholders' equity. The Group reports foreign currency translation adjustments and unrealized gains and losses on investments (those which are considered temporary) as components of comprehensive income.

   
 

Earnings per share

   
 

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options.

   
 

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 deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.

   
 

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

   
 

The Group recognizes interest and penalty related to income tax matters as income tax expense. For the years ended August 31, 2014 and 2013, 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 $30,388 and $24,614 for the years ended August 31, 2014 and 2013 respectively.

 

 
F-19

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

2.

Summary of significant accounting policies (…/Cont’d)

   
 

Fair value measurements

   
 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU 2010-06” “Fair Value Measurements and Disclosures”. The new guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, which will replace the “net” presentation format; and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance is effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods thereafter. The Company adopted the amended fair value disclosures guidance on January 1, 2012. As of August 31, 2014 and 2013, none of the Company’s financial assets or liabilities was measured at fair value on a recurring basis. As of August 31, 2014 and 2013, none of the Company’s non-financial assets or liabilities was measured at fair value on a nonrecurring basis.

   
 

The carrying values of the Company’s financial assets and liabilities, including accounts receivable, other receivables, other current assets, bank loans, accounts payable, and accrued liabilities and other payables, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available. It is not practicable to estimate the fair values of advance to and advance from related parties because of the related party nature of such advances.

 

 
F-20

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

3.

BUSINESS SEGMENTS

 

The Company has four (4) reportable business segments: accounting and corporate services, corporate restructuring and insolvency, multi-disciplinary advisory and corporate and other income. The Company evaluates performance based on net operating profit. Administrative functions are centralized however, where applicable, portions of the administrative function expenses are allocated between the operating segments. In the event any services are provided to one operating segment by the other, the transaction is valued according to the company’s transfer policy, which approximates market price. The administrative expenses are captured discretely within each segment. The Company’s property and equipment, and accounts receivable are captured and reported discretely within each operating segment.

 

The following tables show the operations of the Company’s reportable segments:

 

   

Accounting & Corporate Services

   

Corporate Restructuring & Insolvency

   

Multi-Disciplinary Advisory

   

Corporate & Other Income

   

Total

 

Year ended August 31, 2014

                             

Segment revenue

                             

Revenue from external Customer

 

$

1,967,267

   

$

165,327

   

$

4,026,090

   

$

-

   

$

6,158,684

 

Direct cost of revenue

   

(840,190

)

   

(354,504

)

   

(1,788,885

)

   

(1,864

)

   

(2,985,443

)

Administrative expense

   

(427,234

)

   

(35,848

)

   

(874,531

)

   

-

     

(1,337,613

)

Gross profit/(loss)

   

699,843

     

(225,025

)

   

1,362,674

     

(1,864

)

   

1,835,628

 
                                         

Other income

   

5,429

     

523

     

12,725

     

-

     

18,677

 

Finance cost

   

(39,734

)

   

(3,771

)

   

(91,904

)

   

-

     

(135,409

)

Income/(loss) before income taxes

   

665,538

     

(228,273

)

   

1,283,495

     

(1,864

)

   

1,718,896

 

Income tax

   

(130,868

)

   

(10,941

)

   

(266,210

)

   

-

     

(408,019

)

Net income/(loss)

 

$

534,670

   

$

(239,214

)

 

$

1,017,285

   

$

(1,864

)

 

$

1,310,877

 

 

   

Accounting &
Corporate Services

   

Corporate
Restructuring
& Insolvency

   

Multi-Disciplinary
Advisory

   

Corporate &
Other Income

   

Total

 

Total assets

 

$

1,415,135

   

$

131,968

   

$

3,263,932

   

$

3,983,527

   

$

8,794,562

 
                                         

Total liabilities

 

$

1,719,123

   

$

63,382

   

$

3,974,039

   

$

1,440,617

   

$

7,197,161

 

 

 
F-21

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

3.

BUSINESS SEGMENTS (…../Cont’d)

 

    Accounting & Corporate Services     Corporate Restructuring & Insolvency     Multi-Disciplinary Advisory     Corporate & Other Income     Total  

Year ended August 31, 2013

                   

Segment revenue

                   

Revenue from external customer

 

$

1,541,120

   

$

709,828

   

$

937,936

   

$

9,276

   

$

3,198,160

 

Direct cost of revenue

 

(675,169

)

 

(378,005

)

 

(372,004

)

 

(500

)

 

(1,425,678

)

Administrative expense

 

(491,381

)

 

(150,594

)

 

(198,989

)

 

(1,968

)

 

(842,932

)

Gross profit

   

374,570

     

181,229

     

366,943

     

6,808

     

929,550

 
                                       

Other income

   

2,494

     

-

     

-

     

-

     

2,494

 

Finance cost

 

(74,359

)

 

(34,522

)

 

(45,615

)

 

(451

)

 

(154,947

)

                                       

Income

before income taxes

   

302,705

     

146,707

     

321,328

     

6,357

     

777,097

 

Income tax

 

(85,500

)

 

(28,615

)

 

(37,811

)

 

(374

)

 

(152,300

)

Net income/(loss)

 

$

217,205

   

$

(118,092

)

 

$

283,517

   

$

5,983

   

$

624,797

 

 

    Accounting & Corporate Services     Corporate Restructuring & Insolvency     Multi-Disciplinary Advisory     Corporate & Other Income     Total  

Total assets

 

$

2,086,481

   

$

968,673

   

$

26,257

   

$

1,684,466

   

$

4,765,877

 
                                         

Total liabilities

 

$

1,653,593

   

$

767,700

   

$

934,302

   

$

1,489,130

   

$

4,844,725

 

  

 
F-22

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

4.

ACQUISITION OF SUBSIDIARY, T H STRATEGIC MANAGEMENT LIMITED

 

 

 

Almonds Kisses BVI entered into a share purchase agreement (the "Purchase Agreement") dated October 20, 2013. Pursuant to the Purchase Agreement, the Company agreed to purchase all shares of T H Strategic, (the "Acquisition") for purchase consideration of approximately $516,000 (HK$4 million). The acquisition is to expand its market share in the Hong Kong accounting service industry. Almonds Kisses BVI has fully paid the consideration of acquisition before the end of February 2014. T H Strategic is engaged in providing accounting, taxation, company secretarial and consultancy services. On October 20, 2013, the acquisition was consummated pursuant to the terms of Purchase Agreement and T H Strategic became a wholly owned subsidiary of Almonds Kisses BVI.

 

 

 

The following table summarizes the estimated fair values of tangible assets acquired and liabilities assumed as of the date of the Merger:

 

    Assets/
(liabilities)
 

Cash

 

$

16,189

 

Account receivables

   

89,685

 

Accruals and other payables

 

(17,544

)

Tax payables

 

(25,469

)

Due to a related party

 

(22,504

)

Intangible asset

   

322,477

 

Goodwill

   

153,128

 

Consideration

 

$

515,962

 

 

As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill will be recognized. Goodwill is calculated as the difference between the Acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. No acquisition related costs incurred in this acquisition.

 

The following is a summary of revenues, expenses and net income of T H Strategic since the effective acquisition date (October 20, 2013) included in the consolidated results of operations for the Company during the year ended August 31, 2014:

 

Revenue

 

$

293,804

 

Expenses

 

(158,696

)

Net income attributable to T H Strategic

 

$

135,108

 

 

 
F-23

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

4.

ACQUISITION OF SUBSIDIARY, T H STRATEGIC MANAGEMENT LIMITED (…./Cont’d)

 

The following pro forma consolidated statements of operations have been prepared assuming that the acquisition of T H Strategic occurred on September 1 of each of the years presented.

 

  Pro Forma Consolidated
For the year ended August 31,
 
    2014     2013  
         

Revenue

 

$

325,492

   

$

369,108

 

Expenses

 

(153,679

)

 

(225,156

)

Pro Forma Net Income Attributable To Ordinary Shareholders

 

$

171,813

   

$

143,952

 
               

Pro Forma Net Income Per Share

               

Basic

 

$

0.007

   

$

0.012

 

Diluted

 

$

0.007

   

$

0.012

 
               

Weighted average shares outstanding

               

Basic

   

26,342,404

     

12,252,562

 

Diluted

   

26,342,404

     

12,252,562

 

 

 
F-24

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

5.

ACQUISITION OF SUBSIDIARY, MOTION TECH DEVELOPMENT LIMITED

 

 

 

In August 2013, the Company acquired 100% shareholding of Motion Tech Development Limited, incorporated British Virgin Islands, for net purchase consideration of about US$1,909,653 (approximately HK$14.8 million). Motion Tech is a property holding company. The value of Motion Tech as at August 29, 2013 was $1,909,653 and was allocated as follows:

 

Property and equipment

 

$

1,909,653

 

Total assets acquired

 

$

1,909,653

 

 

The following pro forma consolidated statements of operations have been prepared assuming that the acquisition of Motion Tech occurred on September 1 of each of the years presented.

 

  Pro Forma Consolidated
For the year ended August 31,
 
    2014     2013  
         

Revenue

 

$

-

   

$

-

 

Expenses

 

(77,572

)

 

(851

)

Pro Forma Net Loss Attributable To Ordinary Shareholders

 

$

(77,572

)

 

$

(851

)

               

Pro Forma Net Loss Per Share

               

Basic

 

$

(0.003

)

 

$

-

 

Diluted

 

$

(0.003

)

 

$

-

 
               

Weighted average shares outstanding

               

Basic

   

26,342,404

     

12,252,562

 

Diluted

   

26,342,404

     

12,252,562

 

 

 
F-25

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

6.

CASH

 

 

 

Cash represents cash in bank and cash on hand. Cash as of August 31, 2014 and 2013 consists of the following:

 

    August 31,     August 31,  
    2014     2013  
         

Bank balances and cash

 

$

95,811

   

$

164,314

 

 

All cash was maintained in Hong Kong, PRC. In Hong Kong, there are no rules or regulations mandating an obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.

 

7.

RESTRICTED CASH

 

 

 

At August 31, 2014 and 2013, $258,968 and $129,312 of cash respectively was restricted and deposited in a bank as security for installment loans payable to the bank.

 

 

8.

DUE FROM/(TO) A RELATED PARTY

 

 

 

The amounts due from Tong Wing Shan Michelle, Chief Financial Officer of the Company (“CFO”) are interest free, unsecured and repayable on demand. The Advances to the CFO were funded by Group bank loans. These bank loans were secured by real property owned by the CFO. The activity for such amounts due to the CFO for the years ended August 31, 2014 and 2013 is as follows:

 

    Year Ended
August 31, 2014
 
     

Balance due at September 1, 2013

 

$

418,658

 

Amount repaid during the year

 

(418,658

)

Repayment of loan from a related party

 

(105,690

)

Amount advanced during the year

 

(557,451

)

Foreign currency translation adjustment

   

130

 

Balance due at August 31, 2014

 

$

(663,011

)

 

    Year Ended August 31, 2013  
     

Balance due at September 1, 2012

 

$

241,036

 

Amount advanced during the year

   

4,831,702

 

Amount repaid during the year

 

(4,655,559

)

Foreign currency translation adjustment

   

1,479

 

Balance due at August 31, 2013

 

$

418,658

 

 

 
F-26

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

9.

ADVANCE TO THIRD PARTIES

 

 

 

The advance to third parties represents advances made to three unrelated parties. One of advances is interest bearing at 3.5% per annum and shall be repayable within one year with fixed terms of repayment schedule. One of advances is interest free, unsecured and shall be repayable within one year with fixed terms of repayment schedule. Another one is interest free, unsecured and repayable on demand, and shall be repayable within one year.

 

 

10.

LOAN FROM A RELATED PARTY

 

 

 

The amount of the loan from Tong Wing Shan Michelle, the Company’s CFO, is interest free, unsecured and is due and payable on August 30, 2017. A partial repayment was made by the Company in the fiscal year of 2014.

 

 

11.

PROPERTY AND EQUIPMENT, NET

  

Property and equipment, net consist of the following:

 

    August 31,     August 31,  
    2014     2013  
         

Property held for sale and used

 

$

1,909,062

   

$

1,909,062

 

Leasehold improvement

   

134,613

     

85,345

 

Furniture and fixtures

   

5,632

     

5,632

 

Office equipment

   

6,730

     

6,730

 

Motor vehicle

   

90,344

     

145,407

 
   

2,146,381

     

2,152,176

 

Less: Accumulated depreciation

 

(146,836

)

 

(63,486

)

 

$

1,999,545

   

$

2,088,690

 

 

Depreciation expense included in general and administrative expenses for the years ended August 31, 2014 and 2013 amounted to $110,654 and $50,475, respectively.

 

The residential property held for sale and used held by Motion Tech is collateral for a banking facility with a maximum amount of $2,063,850 (HK$16 million).

 

 
F-27

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

12.

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 $31,076 (net of accumulated depreciation) at August 31, 2014. 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 August 31, 2014, are as follows:

 

    Amount  

Year ending August 31,

   

2015

 

$

11,676

 

2016

   

11,676

 

2017

   

9,730

 

2018

   

-

 

Thereafter

   

-

 

Total minimum lease payment

   

33,082

 

Less: Imputed interest

 

(1,252

)

Present value of net minimum lease payments

   

31,830

 

Less: Current maturities of capital leases obligations

 

(10,843

)

Long-term capital leases obligations

 

$

20,987

 

 

 
F-28

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

13.

INTANGIBLE ASSETS

 

 

 

Intangible assets consist of customer lists purchased from three unrelated parties pursuant to the agreements dated June 21, 2005, April 28, 2011, September 30, 2013 and October 20, 2013.

 

 

 

Intangible assets as of August 31, 2014 and 2013 consist of the following:

 

    Client list 1     Client list 2     Client list 3     T H Strategic     Total  

Amortized intangible assets:

                   

Gross carrying amounts

                   

Balance as of August 31, 2013

 

$

1,025,667

   

$

769,251

   

$

-

   

$

-

   

$

1,794,918

 

Acquisition

   

-

     

-

     

154,789

     

322,477

     

477,266

 

Balance as of August 31, 2014

   

1,025,667

     

769,251

     

154,789

     

322,477

     

2,272,184

 
                                       

Accumulated amortization

                                       

Balance as of August 31, 2013

   

821,129

     

179,949

     

-

     

-

     

1,001,078

 

Amortization expenses

   

103,171

     

77,378

     

14,186

     

28,211

     

222,946

 

Balance as of August 31, 2014

   

924,300

     

257,327

     

14,186

     

28,211

     

1,224,024

 
                                       

Total amortized intangible assets

 

$

101,367

   

$

511,924

   

$

140,603

   

$

294,266

   

$

1,048,160

 

 

The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the years ended August 31, 2014 and 2013 are $222,946 and $180,519 respectively. The future amortization as of August 31, 2014 will be as follows:

 

    Amount  

Year ending August 31,

   

2015

 

$

226,527

 

2016

   

125,160

 

2017

   

125,160

 

2018

   

125,160

 

2019

   

125,160

 

Thereafter

   

320,993

 
 

$

1,048,160

 

 

 
F-29

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

14.

OTHER INVESTMENT

 

 

 

On August 20, 2014, the Company acquired 2% of the issued and outstanding capital stock of Elite Global Group Limited (incorporated in Hong Kong) (“Elite Global”) from one of the then two shareholders of Elite Global for the sum of approximately $2,000,000 (HK $15,000,000) payable by the transfer of certain receivables due to a subsidiary of the Company. Elite Global has entered into a Preliminary Development Agreement with Viacom Media Networks to construct and establish a new entertainment theme park in the PRC. Elite Global is expected to submit a development plan for Viacom’s approval and then obtain a license to operate the theme park. The Company is not aware of the proposed timeframe for completion of the foregoing. In addition, Elite Global is a party to a Joint Venture Agreement with Simson Giftware which operates and manufactures merchandise for theme stores in Taiwan and Hong Kong.

 

 

 

Pursuant to the agreement with the seller of the shares, the Company retains the right to request the seller to buy back all or part of the shares purchased at $2,000,000 or such proportionate amount, if any, after August 20, 2015.

 

 

15.

DEPOSIT PAID FOR ACQUISITION OF A CLIENT LIST

 

 

 

Amount represents a deposit paid for acquisition of a client list from two parties, one of whom is a shareholder of the Company who holds 21,500 shares of common stock which represents less than 1.0% of the total outstanding shares of common stock of the Company. It is in the board of directors’ view that this is not a related party transaction. In consideration for the acquisition of the customer list, the Company has agreed to pay the seller the sum of $1,500,000 (approximately HK$12 million) and 5,000,000 shares of the common stock of the Company. Such amount is to be paid as follows: (i) $258,000 (approximately HK$2 million) upon signing of the Purchase Agreement which amount has been paid, (ii) $387,000 (approximately HK$3 million) on or before March 30, 2015, and (iii) the balance of the purchase price of $903,000 (approximately HK$7 million) in 18 monthly installments commencing one month after closing. The shares of common stock are to be issued at closing.

 

 
F-30

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

16.

INCOME TAXES

 

 

 

The entities that comprise the Group file separate tax returns in the respective tax jurisdictions that they operate. The Company files income tax returns in the U.S. federal and state, and foreign jurisdictions such as Hong Kong, People’s Republic of China.

 

 

 

The Company is domiciled in the State of Delaware, U.S.A.. No provision for U.S.A. profits tax has been made as the Company has sustained losses.

 

 

 

The Company’s subsidiary, Almonds Kisses is domiciled in the British Virgin Islands, the law of which does not require the company to pay any income taxes or other taxes based on income, business activity or assets.

 

 

 

The Company’s subsidiary, ADGS Advisory Limited, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $365,805 and $152,300 has been made for the years ended August 31, 2014 and 2013, respectively.

 

 

 

The Company’s subsidiary, ADGS Tax Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the years ended August 31, 2014 and 2013.

 

 

 

The Company’s subsidiary, Vantage Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the years ended August 31, 2014 and 2013.

 

 

 

The Company’s subsidiary, Motion Tech is domiciled in the British Virgin Islands, the law of which does not require the company to pay any income taxes or other taxes based on income, business activity or assets.

 

 

 

The Company’s subsidiary, T H Strategic acquired on October 20, 2013, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $24,934 has been made for the year ended August 31, 2014.

 

 
F-31

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

16.

INCOME TAXES (…../Cont’d)

 

 

 

The Company's income tax for the years ended August 31, 2014 and 2013 can be reconciled to the income before income tax expenses in the statement of operations as follows:

 

    Year ended August 31,  
 

2014

   

2013

 

Income before tax

 

$

1,747,107

   

$

777,097

 
               

Expected Hong Kong income tax expense at statutory tax rate of 16.5%

 

$

288,273

   

$

128,221

 

Tax effect of expenses not deductible for tax purpose

   

138,484

     

-

 

Tax effect of income not taxable for tax purpose

 

(6,193

)

   

-

 

Tax effect of tax losses not recognised

 

(28,836

)

   

-

 

Tax concession

 

(426

)

 

(213

)

Tax effect of temporary differences not recognised

   

16,910

     

24,292

 

Utilization of tax losses

 

(193

)

   

-

 

Actual income tax expense

 

$

408,019

   

$

152,300

 

 

The Company is not aware of any income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which the Company and are subject include fiscal years 1998 through 2013. The Company is not aware of any unrecorded tax liabilities which would impact the Company’s financial position or its result of operations as of August 31, 2014 and 2013.

 

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:

 

    August 31,
2014
    August 31,
2013
 

Deferred tax (asset) / liability:

       

Difference between book and tax depreciation

 

$

(2,836

)

 

$

2,340

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Other major temporary differences that give rise to the deferred tax assets and liabilities are net operating losses carry forwards. As the amounts are immaterial as of August 31, 2014 and August 31, 2013, no deferred taxes have been provided for in the accounts.

 

 
F-32

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

17.

BANK LOANS

 

 

 

The details of the bank loans outstanding as of August 31, 2014 are as follows:

 

 

 

Outstanding loan

amount

 

Current annualized

interest rate

           

Name of bank

 

   

Nature of loans

 

Term of loans

 

Collateral

                   

Hang Seng Bank ("HSB")

 

US$97,522

(HK$755,806)

 

HSB monthly rate of 0.38%

 

Term loan

 

June 27, 2012 to June 26, 2017

 

Property and personal guarantee from related party and third party

                   

Hitachi Capital (HK) Ltd

 (“HC”)

 

US$65,449

(HK$507,232)

 

HC annual rate of 8.57% effective

 

Term loan

 

April 11, 2014 to 12 April 2015

 

Personal guarantee from related party and third party

                   

DBS

 

US$1,164,401

(HK$9,024,220)

 

DBS annual rate of 2.75%

 

Term loan

 

November 12, 2012 to 12 October, 2037

 

Property and personal guarantee from related party

                   

Bank of East Asia (“BEA”)

 

US$24,597

(HK$190,629)

 

BEA monthly rate of 0.6%

 

Term loan

 

February 20, 2014 to July 20, 2015

 

Personal guarantee from related party

                   

Hang Seng Bank (“HSB”)

 

US$638,748

 (HK$4,950,359)

 

HSB annual rate of 2.2%

 

Term loan

 

May 16, 2014 to May 16, 2034

 

Property and personal guarantee from related party

                   

Hang Seng Bank (“HSB”)

 

US$497,689

(HK$3,857,143)

 

HSB annual rate of 3.7%

 

Term loan

 

May 16, 2014 to May 15, 2021

 

Property and personal guarantee from related party

 

 

 

 

 

 

 

Shanghai Commercial Bank (“SCB”)

 

US$614,290

 (HK$4,760,808)

 

SCB annual rate of 3%

 

Term loan

 

July 9, 2014 to July 9, 2034

 

Property and personal guarantee from related party

                   

Shanghai Commercial Bank (“SCB”)

 

US$489,782

 (HK$3,795,863)

 

SCB annual rate of 6.25%

 

Term loan

 

June 9, 2014 to June 8, 2017

 

Property and personal guarantee from related party

                   

DBS

 

US$516,122

 (HK$4,000,000)

 

DBS annual rate of 3.0714%

 

Term loan

 

August 8, 2014 to August 8, 2019

 

Property and personal guarantee from related party

                   

Hitachi Capital (HK) Ltd

 (“HC”)

 

US$18,139

(HK$140,574)

 

HC annual rate of 8.56%

 

Term loan

 

January 27, 2014 to September 27, 2015

 

Personal guarantee from related party and third party

 

 

$ 4,126,739

               

 

 
F-33

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

17.

BANK LOANS (…../Cont’d)

 

 

 

The details of the bank loans outstanding as of August 31, 2013 are as follows:

 

 

 

Outstanding loan

amount

 

Current annualized

interest rate

           

Name of bank

 

   

 Nature of loans

 

 Term of loans

 

 Collateral

                   

Shanghai Commercial Bank ("SCB")

 

US$943,651

(HK$7,315,652)

 

SCB annual rate of 3%

 

 Term loan

 

January 30, 2012 to December 31, 2035

 

Property and personal guarantee from related party and third party

                 

Hang Seng Bank ("HSB")

 

US$136,863

 (HK$1,061,028)

 

HSB monthly rate of 0.38%

 

Term loan

 

June 27, 2012 to June 26, 2017

 

Property and personal guarantee from related party and third party

                   

Hitachi Capital (HK) Ltd ("HC")

 

US$5,573

(HK$43,204)

 

HC annual rate of 6.98%

 

Term loan

 

June 29, 2012 to November 25, 2013

 

Personal guarantee from related party

                   

DBS

 

US$1,200,698

(HK$9,308,419)

 

DBS annual rate of 2.75%

 

Term loan

 

November 12, 2012 to 12 October, 2037

 

Property and personal guarantee from related party

 

 

$ 2,286,785

               

 

Interest expenses for the years ended August 31, 2014 and 2013 are $78,660 and $127,101 respectively.

 

Bank loans repayment schedule is as follows:

 

    August 31,
2014
    August 31,
2013
 

Year ending August 31,

       

2015

 

$

569,425

   

$

107,548

 

2016

   

481,843

     

114,303

 

2017

   

432,570

     

118,253

 

2018

   

273,712

     

90,382

 

2019

   

279,430

     

79,363

 

Thereafter

   

2,089,759

     

1,776,936

 
 

$

4,126,739

   

$

2,286,785

 

 

The bank loans as outlined in the aforementioned tables are secured by related parties' and third parties' properties and personal guarantees.

 

 
F-34

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

18.

DEFERRED REVENUE

 

    August 31,
2014
    August 31,
2013
 
         

Deferred revenue – current portion

 

$

145,159

   

$

145,114

 

Deferred revenue – net of current portion

   

290,319

     

435,343

 
 

$

435,478

   

$

580,457

 

 

The Company has an agreement with a third party for consultancy services with a fixed fee and term of four years, renewable upon expiration. Deferred revenue to be recognized in next fiscal year (2015) is classified as current liabilities with the remaining balance classified as a non-current liabilities.

 

The total future revenue under such non-cancellable agreement with respect to consultancy service income as of August 31, 2014 is as follows:

 

Year Ending August 31,

  Revenue  

2015

 

$

145,159

 

2016

   

145,159

 

2017

   

145,160

 

Thereafter

   

-

 
 

$

435,478

 

 

19.

EQUITY-METHOD INVESTMENT

 

 

 

The Company owns a 30% equity interest of Dynamic Golden Limited (“Dynamic”), a Hong Kong incorporated company with limited liability and Dynamic is a property holding company. The other shareholder of Dynamic (70% ownership of Dynamic), Tong Wing Yee Betty is a principal shareholder of the Company and the sister of the CFO of the Company, Tong Wing Shan Michelle. Dynamic has received no income since it acquired the property in 2008. The property was recorded at cost at about $1.46 million and depreciation was charged over its unexpired term of lease. The property has been used to secure a bank loan granted to ADGS Hong Kong with an outstanding balance of $1,164,401 as of August 31, 2014.

 

 

20.

SUBSCRIPTION RECEIVABLE

 

 

 

As of August 31, 2014, there is a subscription receivable of $3,092,458. Of such amount, $64,515 (approximately HK$500,000) has been received subsequent to August 31, 2014 and prior to the issuance of this report.

 

 

21.

STOCKHOLDERS’ EQUITY

 

 

 

As of August 31, 2014, the Company has authorized common stock of 50,000,000 shares at $0.0001 par value per share, and issued and outstanding common stock of 35,337,805 shares at $0.0001 par value per share. Furthermore, the Company has authorized preferred stock of 2,000,000 shares at $0.0001 par value per share, of which none have been issued to date.

 

 
F-35

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

22.

CONCENTRATIONS OF RISK

 

 

 

The Group's credit risk is somewhat limited due to a relatively large customer base. During the years ended August 31, 2014 and 2013, the Group had one customer, which accounted for 15% of total revenue and 35% of total accounts receivable at August 31, 2014 and had no customer which accounted for more than 10% total revenue at August 31, 2013.

 

 

23.

RELATED PARTY TRANSACTIONS

 

 

 

Significant related party transactions were as follows.

 

 

    Year ended August 31,  
    2014     2013  

Revenue:

       

Accounting & corporate services

 

$

450,671

   

$

-

 

Multi-disciplinary Advisory

   

252,326

     

-

 
               
 

$

702,997

   

$

-

 

Direct cost of revenue:-

               

Accounting & corporate services

 

$

41,574

   

$

107,534

 

Corporate restructuring & insolvency

   

129,455

     

-

 
               
 

$

171,029

   

$

107,534

 

 

The balances associated with accounting & corporate services and corporate restructuring & insolvency primarily represent revenue and direct cost of revenue, which were the fees or expense charged by the Company's Chief Operating Officer and related parties as they are license holders of insolvency to execute the liquidation for the years ended August 31, 2014 and 2013.

 

See Notes 8 and 10 for discussion of advances to and from related parties.

 

 
F-36

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

24.

EQUITY COMPENSATION PLANS

 

 

 

On August 28, 2014, the Company’s Board of Directors approved and adopted the ADGS Advisory, Inc. 2014 Equity Incentive Plan (the “2014 Plan”), subject to the approval by the stockholders to the extent required under Section 422 or 424 of the U.S. Internal Revenue Code or any other applicable laws, and authorized the Company to issue up to 7,500,000 shares of the Company Common Stock under the 2014 Plan (subject to adjustment to take account of stock dividends, stock splits, recapitalizations and similar corporate events). Holders of shares representing a majority of the voting securities of the Company have given their written consent to the approval of the 2014 Plan. The purpose of the 2014 Plan is to provide officers, other employees and directors of, and consultants and advisors to, the Company and the Company’s subsidiaries an incentive to (a) enter into and remain in the Company’s service or that of the Company’s subsidiaries, (b) enhance the Company’s long term performance and that of the Company’s subsidiaries, and (c) acquire a proprietary interest in the Company. Under the 2014 Plan, the Company will have the right to issue stock options, restricted stock, restricted stock units and other stock awards.

 

 

 

The Compensation Committee or another committee of the Company’s Board of Directors (or if there is no committee, the Board of Directors itself) will administer the 2014 Plan. Subject to the express limitations of the 2014 Plan, the Compensation Committee shall have authority in its discretion to determine the eligible persons to whom, and the time or times at which, awards may be granted, the number of shares, units or other rights subject to each award, the exercise, base or purchase price of an award (if any), the time or times at which an award will become vested, exercisable or payable, the performance goals and other conditions affecting an award, the duration of the award, and all other terms of the award.

 

 

 

To date, no awards have been granted under the 2014 Plan.

 

 

 

Information regarding equity compensations plans is set forth in the table below:

 

Plan category

  Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-average exercise price of outstanding options, warrants and rights     Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  
    (a)     (b)     (c)  

Equity compensation

plans approved by

security holders

 

-0-

   

-0-

   

7,500,000

 

 

 

 

 

Equity compensation

plans not approved

by security holders

   

-0-

     

-0-

     

-0-

 

 

 

 

 

Total

   

-0-

     

-0-

     

7,500,000

 

 

 
F-37

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

25.

COMMITMENTS AND CONTINGENCIES

 

 

 

Commitments and contingencies

 

 

(a)

In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising within the normal course of businesses that relate to a wide range of matters. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, evidence and the specifics of each matter. The Group has not recognized a provision for claims or contingencies as of August 31, 2014 and August 31, 2013.

 

 

 
 

(b)

Rental expense amounted to $168,077 and $156,841 for the years ended August 31, 2014 and 2013 respectively. After the year end August 31, 2014, the Company has entered a written tenancy agreement which located in Hong Kong. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of August 31, 2014 are payable as follows:

 

Year Ending August 31,

  Rental  

2015

 

$

473,300

 

2016

   

411,358

 

2017

   

411,358

 

2018

   

34,280

 

2019

   

-

 

Over five years

   

-

 
 

$

1,330,296

 

 

 

(c)

On July 30, 2014, the Company entered into an agreement to acquire a client customer base from a third party for consideration of approximately $1,548,367 (equivalent to HK$12 million) plus 5,000,000 shares of the Company’s common stock. The consideration is payable as follows: (i) a first installment of $258,061 (equivalent to HK $2 million) which was paid upon signing of the Agreement, (ii) a second installment of $387,092 (equivalent to HK$3 million), and a remaining balance payable in eighteen monthly installments of $50,322 (equivalent to HK$390,000 each) commencing one month after closing. The closing is expected to occur on or before March 30, 2015. The total future installments with respect to the agreement are payable as follows:

 

Year Ending August 31,

  Rental  

2015

 

$

638,701

 

2016

   

603,863

 

2017

   

47,742

 

2018

   

-

 

2019

   

-

 

Over five years

   

-

 
 

$

1,290,306

 

 

 
F-38

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

25.

COMMITMENTS AND CONTINGENCIES (…../Cont’d)

 

 

 

Economic and political risks

 

 

(a)

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.

 

 
F-39

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

26.

CONDENSED PARENT COMPANY FINANCIAL INFORMATION

   
 

These supplemental condensed parent company financial statements should be read in conjunction with the notes to the Company’s Consolidated Financial Statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

   
 

As of August 31, 2014 there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except as separately disclosed in the Company’s Consolidated Financial Statements.

 

CONDENSED BALANCE SHEETS

 

    August 31,
2014
    August 31,
2013
 

Assets

       
         

Investment in subsidiaries

 

$

1,591,704

   

$

194,164

 

Due from a related party

   

96,579

     

-

 
               

Total assets

 

$

1,688,283

   

$

194,164

 
               

Liabilities and stockholders' equity

               
               

Current liabilities

               

Accrued expenses

 

$

90,882

   

$

65,011

 

Due to a related party

   

-

     

50,305

 

Total current liabilities

   

90,882

     

115,316

 

Total liabilities

   

90,882

     

115,316

 

Total stockholders’ equity

   

1,597,401

     

78,848

 

Total liabilities and stockholders' equity

 

$

1,688,283

   

$

194,164

 

 

CONDENSED STATEMENT OF INCOME

 

 

  For the year ended August 31, 2014     For the year ended August 31, 2013  

General and administrative expenses

 

$

246,308

     

$

64,987

 

Equity in income of subsidiaries

   

1,084,886

       

582,638

 

Net income

 

$

1,331,194

     

$

647,625

 

 

 
F-40

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

27.

Recently Issued Accounting Pronouncements

   
 

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)." ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

   
 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. . The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

   
 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The Company is currently evaluating the impact of adopting ASU 2014-12 on the Company's results of operations or financial condition.

 

 
F-41

 

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN US DOLLARS)

 

27.

Recently Issued Accounting Pronouncements (…/Cont’d)

   
 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

   
 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements

   

28.

SUBSEQUENT EVENTS

   
 

Subsequent to the year ended August 31, 2014, 1,366,984 shares of Common Stock were issued to ten shareholders in the aggregate which shares were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the U.S. Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons with the meaning of Regulation S.

   
 

As of August 31, 2014, there is subscription receivable of $3,092,458. Of such amount $64,515 (approximately HK$500,000) has been received subsequent to August 31, 2014 and prior to the issuance of this report.

   
 

See Note 26 for information on the agreement entered into on July 30, 2014 to acquire a client customer base from a third party for consideration of approximately about $1,548,367 (equivalent to HK$12 million) plus 5,000,000 shares of the Company’s common stock. The consideration is payable as follows: (i) a first installment of $258,061 (equivalent to HK $2 million) which was paid upon signing of the Agreement, (ii) a second installment of $387,092 (equivalent to HK$3 million), and a remaining balance payable in eighteen monthly installments of $50,322 (equivalent to HK$390,000 each) commencing one month after closing. The closing is expected to occur on or before March 30, 2015. Subsequent to the year ended August 31, 2014, and in January 2015, the Company paid half of the second installment.

 

 

F-42