10-Q 1 adgs_10q.htm FORM 10-Q adgs_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended November 30, 2013

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

For the transition period from_______to _______

Commission file number 001-34274

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

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

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x

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

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.0001 par value per share; 25,000,000 outstanding as of January 22, 2014.
 


 
 

 
ADGS ADVISORY, INC.

TABLE OF CONTENTS
 
     
Pages
 
PART I - FINANCIAL INFORMATION
     
         
Item 1.
Financial Statements.
    3  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    4  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
    12  
Item 4.
Controls and Procedures.
    12  
           
PART II - OTHER INFORMATION
       
           
Item 1.
Legal Proceedings.
   
13
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
    13  
Item 3.
Default upon Senior Securities.
    13  
Item 4.
Mine Safety Disclosures.
    13  
Item 5.
Other Information.
    13  
Item 6.
Exhibits.
    14  
           
SIGNATURES
      15  

 
2

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ADGS ADVISORY, INC.
 
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2013 (UNAUDITED)


 
3

 
 
ADGS ADVISORY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 2013 (UNAUDITED)
 
CONTENTS  
Pages
 
       
Condensed Consolidated Balance Sheets as of November 30, 2013 (Unaudited) and August 31, 2013
    F-1  
         
Condensed Consolidated Statements of Operations for the Three Months Ended November 30, 2013 and November 30, 2012 (Unaudited)
    F-2  
         
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended November 30, 2013 and November 30, 2012 (Unaudited)
    F-3  
         
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended November 30, 2013 (Unaudited)
    F-4  
         
Condensed Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2013 and November 30, 2012 (Unaudited)
    F-5  
         
Notes to the Condensed Consolidated Financial Statements (Unaudited)
    F-6 - F-29  
 
 
F-1

 
 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN US DOLLARS)
 
   
November 30,
 2013
   
August 31,
 2013
 
   
(Unaudited)
       
Assets
             
Current assets
           
Cash
  $ 471,625     $ 164,314  
Restricted cash
    129,604       129,312  
Accounts receivable
    715,945       564,773  
Other receivables
    188,752       130,835  
Due from a related party
    208,921       418,658  
Prepaid expenses
    64,071       64,071  
Total current assets
    1,778,918       1,471,963  
                 
Non-current assets
               
Property and equipment, net
    2,080,942       2,088,690  
Equity-method investment
    368,368       371,096  
Intangible assets
    905,514       793,840  
Goodwill
    475,605       -  
Utility and other deposits
    72,612       40,288  
Total non-current assets
    3,903,041       3,293,914  
                 
Total assets
  $ 5,681,959     $ 4,765,877  
                 
Liabilities and stockholders' equity
                 
Current liabilities
               
Bank overdraft
  $ 818,479     $ 744,077  
Assets held under capital lease
    23,775       23,775  
Accrued liabilities and other payables
    223,207       218,242  
Deferred revenue
    145,114       145,114  
Income tax payable
    191,176       152,357  
Consideration payable for acquisition of an intangible asset
    116,092       -  
Consideration payable for acquisition of a subsidiary
    386,972       -  
Bank loans - current portion
    107,548       107,548  
Total current liabilities
    2,012,363       1,391,113  
                 
Non-current liabilities
               
Assets held under capital lease, net of current portion
    82,459       88,306  
Deferred revenue, net of current portion
    399,065       435,343  
Bank loans - net of current portion
    2,148,594       2,179,237  
Loan from a related party
    750,725       750,726  
Total non-current liabilities
    3,380,843       3,453,612  
                 
Total liabilities
    5,393,206       4,844,725  
                 
Commitments and contingencies
               
                 
Stockholders' equity/(deficit)
               
Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding
    -       -  
Common stock,
               
Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 25,000,000 shares issued and outstanding as of November 30, 2013 and 25,000,000 issued and outstanding as of August 31, 2013
    2,500       2,500  
Additional paid in capital
    (2,500 )     (2,500 )
Retained earning
    435,321       67,868  
Accumulated other comprehensive loss
    (4,442 )     (10,364 )
Total ADGS Advisory, Inc. stockholders' equity
    430,879       57,504  
                 
Non-controlling interests
    (142,126 )     (136,352 )
                 
Total liabilities and stockholders’ equity
  $ 5,681,959     $ 4,765,877  
 
See notes to condensed consolidated financial statements (unaudited).
 
 
F-2

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

   
For the Three Months Ended
November 30,
 
   
2013
   
2012
 
         
(A)
 
             
Revenue
  $ 1,126,764     $ 609,599  
                 
Less: Operating expenses:
               
Direct cost of revenue
    (543,959 )     (363,431 )
General and administrative expenses
    (214,281 )     (210,409 )
Total operating expenses
    (758,240 )     (573,840 )
                 
Operating income
    368,524       35,759  
                 
Other income:
               
Bank interest received
    292       -  
Management fee income
    33,246       -  
Other income
    1,250       -  
                 
Other expense:
               
Interest expenses
    (28,284 )     (29,427 )
                 
Profit before income taxes
    375,028       6,332  
                 
Less: Income tax expense
    (13,349 )     -  
                 
Net profit before allocation of non-controlling interest
    361,679       6,332  
                 
Net loss attributable to non-controlling interest
    5,774       5,671  
                 
Net income attributable to common stockholders
  $ 367,453     $ 12,003  
                 
Earnings per share
               
- Basic and diluted
  $ 0.01     $ 0.24  
                 
Weighted average common shares outstanding
               
- Basic and diluted
    25,000,000       50,000  

(A)  
Represents the consolidated statement of income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)

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

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

(A)  
Represents the consolidated statement of comprehensive income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)

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

 
 
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN US DOLLARS)
 
   
Preferred shares with
US$0.0001 Par Value
   
Common Stock, with
US$0.0001 Par Value
   
 Additional
paid-in
     Accumulated Other            Non-        
   
Number of Shares
   
 
Amount
   
Number of Shares
   
Amount
   
capital
Amount
   
Comprehensive (loss)/income
   
Retained Earnings
   
controlling Interest
   
Total Equity
 
               
 
   
 
   
 
         
 
   
 
       
Balance as of August 31, 2013
    -       -       25,000,000     $ 2,500     $ (2,500 )   $ (10,364 )   $ 67,868     $ (136,352 )   $ (78,848 )
Net profit/(loss)
    -       -       -       -       -       -       367,453       (5,774 )     361,679  
Foreign translation gain
    -       -       -       -       -       5,922       -       -       5,922  
                                                                         
Balance as of November 30, 2013
     -        -       25,000,000       2,500       (2,500 )   $ (4,442 )   $ 435,321     $ (142,126 )   $ 288,753  

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

 
 
ADGS ADVISORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN US DOLLARS)
 
   
For the Three Months Ended
November 30,
 
   
2013
   
2012
 
         
(A)
 
Cash flows from operating activities:
           
Net profit/(loss)
  $ 367,453     $ 12,003  
Less: Net loss attributable to non-controlling interest
    (5,774 )     (5,671 )
      361,679       6,332  
Adjustments to reconcile net profit/(loss) to net cash provided by operating activities:
               
Depreciation of property and equipment
    25,818       6,285  
Equity in loss of equity-method investment
    2,728       2,712  
Amortization of intangible assets
    49,013       44,875  
Changes in assets and liabilities:
               
Utility and other deposits
    (32,323 )     1,283  
Accounts receivable
    (61,483 )     -  
Other receivables
    (57,913 )     -  
Prepaid expenses
    -       (17,768 )
Income tax payable
    13,349       -  
Accrued liabilities
    (35,081 )     85,918  
Deferred revenue
    (36,276 )     -  
Net cash provided by operating activities
    229,511       129,637  
                 
Cash flows from investing activities:
               
Acquisition of an intangible asset, net of cash acquired
    (38,705 )     -  
Acquisition of subsidiary, net of cash acquired
    (112,826 )     -  
Cash paid for property and equipment
    (18,071 )     (8,118 )
Net cash used in investing activities
    (169,602 )     (8,118 )
                 
Cash flows from financing activities:
               
Advances made and expenses paid on behalf of a related party
    -       (2,366,544 )
Repayment of advances made and expenses paid on behalf of a related party
    209,601       795,842  
Proceeds from bank loans and bank overdraft
    -       1,535,411  
Repayment of bank loans
    (30,641 )     (41,017 )
Net increase in restricted cash
    (292 )     -  
Net increase in bank overdraft
    74,398       -  
Repayment of capital lease obligations
    (5,846 )     (2,360 )
Net cash provided by / (used in) financing activities
    247,220       (78,668 )
Net increase in cash
    307,129       42,851  
Effect on change of exchange rates on cash
    182       (33 )
Cash as of the beginning of the period
    164,314       129,001  
Cash as of the end of period
  $ 471,625     $ 171,819  
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Bank loan interest paid
  $ 14,663     $ 29,260  
Capital lease interest
  $ 990     $ 167  
 
(A)  
Represents the consolidated statement of cash flows of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”) (See note 1)
 
See notes to condensed consolidated financial statements (unaudited).
 
 
F-6

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

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

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

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

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

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

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

ADGS Advisory, Inc. is a holding company and, through its subsidiaries and group company, 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 Almond Kisses own a majority of the outstanding shares of the Company's capital stock immediately following the Share Exchange.

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

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

Details of the Company’s 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
             
Almond Kisses Limited
“Almond 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)
 
Engage in providing accounting, taxation, company secretarial, and consultancy services.
             
Motion Tech Development Limited
“Motion Tech”
 
British Virgin Islands
October 3, 2007
 
100% (through Almonds Kisses effective on August 29, 2013)
 
Property holding company
             
T H Strategic Management Limited
“T H”
 
Hong Kong, PRC
March 16, 2010
 
100% (though Almonds Kisses effective on October 20, 2013)
 
Engage in providing accounting, taxation, company secretarial, and consultancy services.

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

 

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

Basis of presentation

These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these interim consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended August 31, 2013, as filed in Form 10-K with the Securities and Exchange Commission on December 24, 2013.

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

As both the Company and its subsidiaries, ADGS and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to periods prior to the assets and liabilities are that of the Company’s operating subsidiaries.

Going concern
 
The accompanying consolidated financial statements are presented on a going concern basis. The Company has a working capital deficit of $233,445 at November 30, 2013. Management plans to continue its efforts to raise funds through debt or equity in the near future and improve its profitability to sustain its operations.

 
F-10

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

2.  
Summary of significant accounting policies (…/Cont’d)

Foreign currency translation

The Group uses United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting purposes. The 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:
 
 
November 30,
2013
 
August 31,
2013
 
(Unaudited)
   
       
Balance sheet items, except for equity accounts
HK$7.7525=$1
 
HK$7.7525=$1
       
 
November 30,
 
November 30,
 
2013
 
2012
 
(Unaudited)
   
       
Items in statements of income and cash flows for the three months ended
HK$7.7530=$1
 
HK$7.7554=$1

Revenue recognition

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

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

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

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

(iii)  
Rental income
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
 
 
F-11

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

Revenue recognition (…/Cont’d)

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

Direct cost of revenue

Direct 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 November 30, 2013 and August 31, 2013.

Restricted cash

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

Accounts receivable

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

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

 
F-12

 

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

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

Property and equipment

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

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

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

The estimated useful lives of the assets are as follows:
 
   
Estimated Life
Investment property
 
Over the unexpired term of the lease
Leasehold improvement
 
5 years
Furniture and fixtures
 
5 years
Office equipment
 
5 years
Motor vehicles
 
5 years

Equity-method investment

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

Non-controlling interest

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

 
F-13

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

Purchased intangible assets

The Group assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
 
- significant underperformance relative to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy for our overall business;
- identification of other impaired assets within a reporting unit;
- disposition of a significant portion of an operating segment;
- significant negative industry or economic trends;
 
The intangible assets are amortized using the straight line method over a period of 10 years.
 
Purchased goodwill

All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.

Positive goodwill arising on acquisitions is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortized but is tested annually for impairment.

Decreases in goodwill resulting from the non-payment of contingent consideration are recognized in the period when non-payment occurs.

Negative goodwill arising on an acquisition is recognized directly in profit or loss.

The Group assesses the useful lives and possible impairment of existing goodwill when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
 
- significant underperformance relative to historical or projected future operating results;
- significant changes in the manner of use of the acquired assets or the strategy for our overall business;
- identification of other impaired assets within a reporting unit;
- disposition of a significant portion of business;
- significant negative industry or economic trends;
 
Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an accrual basis or when indications of impairment exist.

Assets under capital lease

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. The interest element of the finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Depreciation expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.
 
 
F-14

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

2.  
Summary of significant accounting policies (…/Cont’d)

Comprehensive income

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

Earnings per share

Basic earnings per share is computed on the basis of the weighted-average number of shares of the Company’s common stock outstanding during the fiscal years. Diluted earnings per share is computed on the basis of the weighted-average number of shares of the common stock plus any effect of dilutive potential common shares outstanding during the period using the if-converted method.

Income taxes

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

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than-not that the 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. As of November 30, 2013 and 2012, there was no penalty or interest recognized as income tax expenses.
 
 
F-15

 

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

Employee benefits

i)
Salaries, wages, annual bonuses, paid annual leave and staff welfare are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

ii)
Contributions to appropriate local contribution retirement schemes pursuant to the relevant labor rules and regulations in Hong Kong which are charged to the cost of sales and general and administrative expenses in the statement of operation as and when the related employee service is provided. The Group incurred $13,818 and $9,159 for the period ended November 30, 2013 and 2012, respectively.

Fair value measurements

FASB ASC Topic 820, “Fair Value Measurement and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Group. Unobservable inputs reflect the Group’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy is categorized into three levels based on the inputs as follows:

 
Level 1 -
Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

 
Level 2 -
Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.

 
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
The Group’s financial instruments consist principally of cash, accounts receivable, accounts payable, bank loans, and accrued liabilities. Pursuant to ASC 820, the fair value of the Group's cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Group believes that the carrying amounts of all of the Group's other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
 
 
F-16

 

ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
3.  
BUSINESS SEGMENTS

A)  
Business segment reporting - by product

The Company has three (3) reportable business segments: providing accounting, taxation, company secretarial, consultancy services, and consultancy service for slope inspection. The Company evaluates performance based on net operating profit. Administrative functions are centralized however, where applicable, portions of the administrative function expenses are allocated between the operating segments. In the event any services are provided to one operating segment by the other, the transaction is valued according to the company’s transfer policy, which approximates market price. The administrative expenses are captured discretely within each segment. The Company’s property and equipment, and accounts receivable are captured and reported discretely within each operating segment.

The following tables set forth the Company's four main segments:

   
Accounting & Corporate Services
   
Corporate Restructuring & Insolvency
   
 
Multi-Disciplinary Advisory
   
 
Corporate & Other Income
   
 
 
Total
 
Three months ended November 30, 2013
                             
Segment revenue
                             
Revenue from external customer
  $ 279,642     $ 24,524     $ 822,598     $ -     $ 1,126,764  
Cost of sales
    (167,697 )     (27,804 )     (348,458 )     -       (543,959 )
Administrative expense
    (53,180 )     (4,664 )     (156,437 )     -       (214,281 )
Gross (profit) / loss
    58,765       (7,944 )     317,703       -       368,524  
                                         
Other income
    8,634       757       25,397       -       34,788  
Finance cost
    (7,019 )     (616 )     (20,649 )     -       (28,284 )
                                         
Income before income taxes
    60,380       (7,803 )     322,451       -       375,028  
Income tax
    (3,313 )     (291 )     (9,745 )     -       (13,349 )
Net income
  $ 57,067     $ (8,094 )   $ 312,706     $ -     $ 361,679  

   
Accounting & Corporate Services
   
Corporate Restructuring & Insolvency
   
Multi-Disciplinary Advisory
   
Corporate & Other Income
   
Total
 
                                         
Total assets
  $ 1,234,312     $ 99,433     $ 2,838,623     $ 1,509,591     $ 5,681,959  
                                         
Total liabilities
  $ 895,340     $ 73,788     $ 2,696,894     $ 1,727,184     $ 5,393,206  
 
 
F-17

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

A)  
Business segment reporting - by product (…../Cont’d)

   
Accounting & Corporate Services
   
Corporate Restructuring & Insolvency
   
 
Multi-Disciplinary Advisory
   
 
Corporate & Other Income
   
 
 
Total
 
Three months ended November 30, 2012
                             
Segment revenue
                             
Revenue from external customer
  $ 286,549     $ 248,287     $ 74,763     $ -     $ 609,599  
Cost of sales
    (153,016 )     (159,933 )     (50,482 )     -       (363,431 )
Administrative expense
    (98,905 )     (85,699 )     (25,805 )     -       (210,409 )
Gross profit/(loss)
    34,628       2,655       (1,524 )     -       35,759  
                                         
Other income
    -       -       -       -       -  
Finance cost
    (13,833 )     (11,985 )     (3,609 )     -       (29,427 )
                                         
Income/(loss) before income taxes
    20,795       (9,330 )     (5,133 )     -       6,332  
Income tax
    -       -       -       -       -  
Net income/(loss)
  $ 20,795     $ (9,330 )   $ (5,133 )   $ -     $ 6,332  

   
Accounting & Corporate Services
   
Corporate Restructuring & Insolvency
   
Multi-Disciplinary Advisory
   
 
Inter-group Re-allocation
   
Corporate & Other Income
   
Total
 
                                                 
Total assets
  $ 1,905,154     $ 1,650,765     $ 780,130     $ (879,109 )   $ -     $ 3,456,940  
                                                 
Total liabilities
  $ 1,947,899     $ 1,687,802     $ 1,387,332     $ (879,109 )   $ -     $ 4,143,924  
 
 
F-18

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
4.  
ACQUISITION OF SUBSIDIARY
 
Almonds Kisses Limited (“Almonds Kisses”), a wholly owned subsidiary of ADGS Advisory Inc. (the "Company") entered into a purchase and sale agreement (the "Purchase Agreement") dated October 20, 2013 which was previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 23, 2013. Pursuant to the Purchase Agreement, the Company agreed to purchase all shares of T H Strategic Management Limited (“T H Strategic”), a Hong Kong, People’s Republic of China incorporated company (the "Acquisition") for purchase consideration of approximately $516,000 (HK$4 million). T H Strategic Management Limited is engaged in providing accounting, taxation, company secretarial and consultancy services.
 
In consideration for acquisition of the issued and outstanding shares of TH Strategic, Almonds Kisses has agreed to pay the seller the sum of about $516,000 (HK$4 million), payable in four equal monthly installments of about $129,000 (HK$1 million) each. Almonds Kisses has paid the first installment on October 18, 2013, and the remaining installments of $129,000 each which will be due on December 15, 2013, January 15, 2014 and February 15, 2014.
 
The following table summarizes the estimated fair values of tangible assets acquired and liabilities assumed as of the date of the Merger:

   
Assets/(liabilities)
 
Cash
  $ 16,189  
Account receivables
    89,685  
Accrual and other payables
    (17,544 )
Tax payables
    (25,469 )
Due to a related party
    (22,504 )
Total identifiable net assets
  $ 40,357  
Goodwill
    475,605  
Consideration
  $ 515,962  

As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill will be recognized. Goodwill is calculated as the difference between the Acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. No acquisition related costs incurred in this acquisition.
 
 
F-19

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
5.  
CASH

Cash represents cash in bank and cash on hand. Cash as of November 30, 2013 and August 31, 2013 consists of the following:

   
November 30,
2013
   
August 31,
2013
 
   
(Unaudited)
       
             
Bank balances and cash
  $ 471,625     $ 164,314  

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

6.  
RESTRICTED CASH

As of November 30, 2013 and August 31, 2013 the Group's cash amounting to $129,604 and $129,312 respectively, were restricted and deposited in a bank as security for installment loans payable to the bank.
 
 
F-20

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
7.  
DUE FROM A RELATED PARTY

The amounts due from the Group CFO are interest free, unsecured and repayable on demand. The Advances to the CFO were funded by Group bank loans. These bank loans were secured by real property owned by the CFO. The activity for such amounts due to shareholders for the period/year ended November 30, 2013 and August 31, 2013 is as follows:

   
November 30,
2013
 
   
(Unaudited)
 
         
Balance due from a related party at beginning of year
  $ 418,658  
Amount repaid by her during the period
    (209,601 )
Exchange alignment
    (136 )
Balance due from a related party at end of period
  $ 208,921  
 
   
August 31,
2013
 
       
Balance due from a related party at beginning of year
  $ 241,036  
Amount repaid/advanced to her during the year
    4,831,702  
Amount repaid by her during the year
    (4,655,559 )
Exchange alignment
    1,479  
Balance due from a related party at end of year
  $ 418,658  
 
8.  
LOAN FROM A RELATED PARTY

The loan from a related party is interest free, unsecured and is due and payable on August 30, 2017.
 
 
F-21

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
9.  
PROPERTY AND EQUIPMENT, NET
 
Property and equipment, net consist of the following:

   
November 30,
2013
   
August 31,
2013
 
   
(Unaudited)
       
             
Investment property
  $ 1,909,061     $ 1,909,062  
Leasehold improvement
    103,896       85,345  
Furniture and fixtures
    5,632       5,632  
Office equipment
    6,730       6,730  
Motor vehicle
    145,406       145,407  
      2,170,725       2,152,176  
Less: Accumulated depreciation
    (89,783 )     (63,486 )
    $ 2,080,942     $ 2,088,690  

Depreciation expense for the three months ended November 30, 2013 and 2012 amounted to $25,818 and $6,285 respectively.

Included in motor vehicle of the Group, the net carrying amount of $112,913 (2012: $21,025) is under capital lease with the related depreciation charge for the three months ended November 30, 2013 of $7,270 and 2012 is $1,402.

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

 
F-22

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
10.  
ASSETS HELD UNDER CAPITAL LEASES

The Group leases a motor vehicle that is classified as capital lease. The cost of the motor vehicle under capital leases is included in the Balance Sheets as property and equipment and was $112,913 ($112,913 net of accumulated depreciation) at November 30, 2013. Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of November 30, 2013, are as follows:

   
Amount
 
Year ending August 31,
     
2014 (Nine months)
  $ 22,488  
2015
    27,345  
2016
    27,345  
2017
    27,345  
2018
    10,752  
Thereafter
    -  
Total minimum lease payment
    115,275  
Less: Imputed interest
    (9,041 )
Present value of net minimum lease payments
    106,234  
Less: Current maturities of capital leases obligations
    (23,775 )
Long-term capital leases obligations
  $ 82,459  
 
11.  
INTANGIBLE ASSETS

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

The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the three months ended November 30, 2013 is $49,013 and 2012 is $44,875. The future amortization as of August 31 will be as follows:

   
Amount
 
Year ending August 31,
     
2014 (Nine months)
  $ 164,452  
2015
    219,270  
2016
    87,063  
2017
    116,084  
2018
    73,520  
Thereafter
    245,125  
    $ 905,514  
 
 
F-23

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
12.  
INCOME TAXES EXPENSES
 
The entities that comprise the Group file separate tax returns in the respective tax jurisdictions that they operate. The Company files income tax returns in the U.S. federal and state, and foreign jurisdictions such as Hong Kong, People’s Republic of China. The Inland Revenue Department of Hong Kong, People’s Republic of China would have a 7 year period that it could make changes on tax returns filed.
 
The Company is domiciled in the State of Delaware, U.S.A.. No provision for U.S.A. profits tax has been made as the Company has sustained losses.

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

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

The Company’s subsidiary, ADGS Advisory Limited, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $12,955 has been made for the three months ended November 30, 2013. No provision for Hong Kong profits tax has been made for 2012, as the subsidiary sustained tax losses in that period.

The Company’s subsidiary, ADGS Tax Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the three months ended November 30, 2013 and 2012.

The Company’s subsidiary, Vantage Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the three months ended November 30, 2013.

The Company’s subsidiary, T H Strategic Management Limited acquired on October 20, 2013, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $394 has been made for the three months ended November 30, 2013.
 
 
F-24

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
12.  
INCOME TAXES EXPENSES (…/Cont’d)

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

   
For the three months ended November 30, 2013
   
For the three months ended November 30, 2012
 
             
Profit before tax
  $ 375,028     $ 6,332  
                 
Expected Hong Kong income tax expense                
at statutory tax rate of 16.5%
    15,470       1,044  
                 
Temporary difference
    (2,121 )     (1,044 )
Actual income tax expense
  $ 13,349     $ -  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

   
November 30,
 2013
   
August 31,
2013
 
   
(Unaudited)
       
Deferred tax asset:
       
 
 
Unrecognized tax losses
  $ -     $ -  
                 
Deferred tax liability:
               
Difference between book and tax depreciation
  $ -     $ 2,340  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Other major temporary differences that give rise to the deferred tax assets and liabilities are net operating losses carry forwards. As the amounts are immaterial as of November 30, 2013 and August 31, 2013, no deferred taxes have been provided for in the accounts.

 
F-25

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
13.  
BANK LOANS

The details of the bank loans outstanding as of November 30, 2013 (unaudited) are as follows:

   
Outstanding loan
 
Current annualized
           
Name of bank
 
amount
 
interest rate
 
Nature of loans
 
Term of loans
 
Collateral
                     
Shanghai Commercial Bank ("SCB")
 
US$936,258
(HK$7,258,338)
 
SCB annual rate of 3%
 
Term loan
 
January 30, 2012 to December 31, 2035
 
Property and personal guarantee from related party and third party
       
 
     
 
 
Hang Seng Bank ("HSB")
US$125,664
(HK$974,208)
 
HSB monthly rate of 0.38%
 
Term loan
 
June 27, 2012 to June 26, 2017
 
Property and personal guarantee from related party and third party
       
 
     
 
 
 
Hitachi Capital (HK) Ltd ("HC")
US$2,539
(HK$19,688)
 
HC annual rate of 6.98%
 
Term loan
 
June 29, 2012 to November 25, 2013
 
Personal guarantee from related party
                   
DBS
US$1,191,681
(HK$9,238,510)
 
DBS annual rate of 2.75%
 
Term loan
 
November 12, 2012 to 12 October, 2037
 
Property and personal guarantee from related party
                   
  $
2,256,142
               

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

   
Outstanding loan
 
Current annualized
           
Name of bank
 
amount
 
interest rate
 
Nature of loans
 
Term of loans
 
Collateral
                     
Shanghai Commercial Bank ("SCB")
 
US$943,651
(HK$7,315,652)
 
SCB annual rate of 3%
 
Term loan
 
January 30, 2012 to December 31, 2035
 
Property and personal guarantee from related party and third party
       
 
     
 
 
Hang Seng Bank ("HSB")
US$136,863
(HK$1,061,028)
 
HSB monthly rate of 0.38%
 
Term loan
 
June 27, 2012 to June 26, 2017
 
Property and personal guarantee from related party and third party
       
 
     
 
 
 
Hitachi Capital (HK) Ltd ("HC")
US$5,573
(HK$43,204)
 
HC annual rate of 6.98%
 
Term loan
 
June 29, 2012 to November 25, 2013
 
Personal guarantee from related party
                   
DBS
US$1,200,698
(HK$9,308,419)
 
DBS annual rate of 2.75%
 
Term loan
 
November 12, 2012 to 12 October, 2037
 
Property and personal guarantee from related party
                   
  $
2,286,785
               
 
 
F-26

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
13.  
BANK LOANS (…../Cont’d)

Interest expenses for the three months ended November 30, 2013 and 2012 amounted to $14,663 and $29,260 respectively.

Bank loans repayment schedule is as follows:
 
   
November 30,
2013
   
August 31,
2013
 
Year ending August 31,
           
2014 (Nine months)
    76,905       107,548  
2015
    114,303       114,303  
2016
    118,253       118,253  
2017
    90,382       90,382  
2018
    79,363       79,363  
Thereafter
    1,776,936       1,776,936  
    $ 2,256,142     $ 2,286,785  

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

 
F-27

 
 
ADGS ADVISORY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN US DOLLARS)
 
14.  
DEFERRED REVENUE

   
November 30,
2013
   
August 31,
2013
 
             
Deferred revenue – current portion
  $ 145,114     $ 145,114  
Deferred revenue – net of current portion
    399,065       435,343  
    $ 544,179     $ 580,457  

The Company has an agreement with a third party for consultancy services with a fixed fee and term of four years, renewable upon expiration. Deferred revenue to be recognized in next fiscal year (2014) is classified as current liabilities with the remaining balance classified as a non-current liabilities.

15.  
CONCENTRATIONS OF RISK

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

16.  
RELATED PARTY TRANSACTIONS

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

   
For the three months ended November 30, 2013
   
For the three months ended November 30, 2012
 
                 
Sub-contracting fee
    24,935       107,534  

These balances primarily represent sub-contracting fees included as part of the cost of revenues to the Company's Chief Operating Officer and a company controlled by one of the Company’s directors for the three months ended November 2013 and 2012.

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

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

17.  
COMMITMENTS AND CONTINGENCIES

Commitments and contingencies

(a)  
In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising within the normal course of businesses that relate to a wide range of matters. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, evidence and the specifics of each matter. The Group has not recognized a provision for claims or contingencies as of November 30, 2013 and August 31, 2013.

(b)  
Rental expense amounted to $42,543 (HK$329,836) and $40,980 (HK$319,620) for three months ended November 30, 2013 and 2012 respectively. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of November 30, 2013 are payable as follows:

Period Ended November 30,
 
Rental
 
2014 (Nine months)
  $ 100,191  
2015
    94,206  
2016
    -  
2017
    -  
2018
    -  
Over five years
    -  
    $ 194,397  

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

Period Ended November 30,
 
Revenue
 
2014 (Nine months)
  $ 108,836  
2015
    145,114  
2016
    145,114  
2017
    145,115  
2018
    -  
Over five years
    -  
    $ 544,179  

Economic and political risks

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

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

 

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

The following should be read in conjunction with the consolidated financial statements of the Company included elsewhere herein. All amounts are in U.S. Dollars unless other noted.

Forward-Looking Statements

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

Company Overview

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

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

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

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

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

 
4

 
 
ADGS Advisory, Inc.
(formerly Life Nutrition Products, Inc.),
a Delaware corporation
 
ê 100%
 
Almonds Kisses Limited (BVI),
a British Virgin Islands company
 
ê 100% ê 100%
ê 100%
ê 100%
ê 30%
         
ADGS Advisory Limited Vantage Advisory Limited, TH 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
ê 80%        
         
ADGS Tax Advisory Limited
a Hong Kong corporation
       
 
Critical Accounting Policies

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

Basis of presentation
 
These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these interim consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended August 31, 2013, as filed in Form 10-K with the Securities and Exchange Commission on December 24, 2013.

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

As both the Company and its subsidiaries, ADGS and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to periods prior to the assets and liabilities are that of the Company’s subsidiaries.

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

Revenue recognition

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

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

 
5

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

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

(iii) Rental income

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
 
(iv) Management fee income
 
The Company recognizes the management fee income when service is provided.  Services include providing administration support service or accounting service to companies.

Purchased intangible assets
 
The Company assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
 
-   significant underperformance relative to historical or projected future operating results;
-   significant changes in the manner of use of the acquired assets or the strategy for our overall business;
-   identification of other impaired assets within a reporting unit;
-   disposition of a significant portion of an operating segment;
-   significant negative industry or economic trends;
 
The intangible assets are amortized using the straight line method over a period of 10 years.

Income taxes

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

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

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

The Company recognizes interest and penalty related to income tax matters as income tax expense. As of November 30, 2013 and August 31, 2013, there was no penalty or interest recognized as income tax expenses.

Economic and political risks

The major operations of the Company are conducted in Hong Kong, the PRC. Accordingly, the political, economic, and legal environments in Hong Kong, the PRC, as well as the general state of Hong Kong’s economy may influence the business, financial condition, and results of operations of the Company.
 
Among other risks, the Company's operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.

 
6

 
 
Recently issued accounting standards not yet adopted

The Company has reviewed all recently issued, but not effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will cause a material impact on its financial condition or the result of its operation.

Trends and Uncertainties

Insofar that our revenues are mainly derived from providing professional services to our clients under fixed-fee billing arrangements, the number of clients we have at any given time and the fees billed are the Company’s key uncertainties. The recent growth in revenues was primarily due to the acquisition of customer lists and client bases in 2011 and, therefore, we cannot be certain that this growth represents a trend which will continue 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 November 30, 2013 (unaudited) and August 31, 2013 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,256,142 and $2,286,785, respectively. We also had bank overdrafts of $818,479 as of November 30, 2013 compared with $744,077 as of August 31, 2013. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the three months ended November 30, 2013 was $14,663 and for the three months ended November 30, 2012 was $29,260. Such loans are primarily term loans with maturity dates ranging from November 2013 to October 2037. Approximately $0.5 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2013, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations.
 
In addition to the foregoing, as of November 30, 2013, advances to shareholder total $208,921. The advances to shareholder represent unsecured, non-interesting bearing loans without fixed repayment terms. Although most of such advances have been repaid to the Company, such advances may have detrimentally affected our ability to do business insofar that such advances represented a major portion of the Company’s available cash. These advances were provided as a special accommodation to such shareholder whose personal properties were provided as collateral for bank loans obtained by the Company. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to February28, 2014. The foregoing represents another key uncertainty since no assurance can be made that such advances will be repaid on or before February 28, 2014 or at all. In addition, although such advances are no longer being made to such shareholder, such advances have not generated income to the Company and may have detrimentally affected our ability to grow the business for the benefit of all of the shareholders.

Principal Components of Our Income Statement

Revenue

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

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

 
7

 
 
Direct cost of revenue

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

General and administrative expenses

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

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

Other comprehensive income

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

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

The following table presents the consolidated statements of operations of the Company for the three months ended November, 2013 as compared to the three months ended November, 2012.
 
   
For the Three Months Ended
November
 
   
2013
   
2012
 
    (unaudited)     (unaudited)  
          (A)  
             
Revenue
  $ 1,126,764     $ 609,599  
Less: Operating expenses
               
Direct cost of revenue
    (543,959 )     (363,431 )
General and administrative expenses
    (214,281 )     (210,409 )
Operating profit     368,524       35,759  
Other income
    34,788       -  
Other expenses
    (28,284 )     (29,427 )
Net profit
    375,028       6,332  
Income tax expenses
    (13,349 )     -  
Other comprehensive income/(loss)
    5,922       (51 )
Total comprehensive income
    367,601       6,281  
Comprehensive loss attributable to non-controlling interests
    5,774       5,671  
Comprehensive income attributable to ADGS Advisory, Inc.
  $ 373,375     $ 11,952  

(A)  Represents the consolidated statement of comprehensive income of Almonds Kisses Limited and subsidiaries (the “Accounting Acquirer”)
 
 
8

 
 
Revenue

Our business for the three months ended November, 2013 expanded rapidly. We recorded revenue of $1.1 million for the three months ended November, 2013, representing an increase of $0.5 million as compared to the results of $0.6 million for the same period ended November, 2012. The increase was primarily due to the increase of revenue stream in corporate restructuring, insolvency services and multi-disciplinary advisory services and a steadily growth in accounting and corporate services.

General and administrative expenses

   
For the Three Months Ended November
   
%
 
    2013     2012     change  
Revenue
  $ 1,126,764     $ 609,599       +85 %
Less: Operating expenses
                       
Direct cost of revenue
    (543,959 )     (363,431 )     +50 %
General and administrativeexpenses
    (214,281 )     (210,409 )     +2 %
Operating profit
  $ 368,524     $ 35,759       +931 %

The significant increase in general and administrative expenses is mainly caused by the increase of revenue stream in our services which led to more general and administrative expenses incurred.

Other expense

Other expense represents the interest expense for the bank loans of $28,284 and $29,427 for the three months ended November, 2013 and 2012 respectively.

Other comprehensive income/(loss)

Other comprehensive income/(loss) represents the foreign currency translation adjustment of $5,922 and $51 loss for the three months ended November, 2013 and 2012 respectively.

Liquidity and Capital Resources

As of November 30, 2013, we had cash on hand of $471,625, which represented an increase of $307,311 from $164,314 as of August 31, 2013, total current assets of $1,778,918, and total current liabilities of $2,012,363. Working capital was in deficit of $233,445 and the ratio of current assets to current liabilities was 0.9 to 1 as of November 30, 2013.

As of November 30, 2013 we had long term debt of $3,380,843, which represented an decrease of $72,769 from $3,453,612 as of August 31, 2013; total assets of $5,681,959 as of November 30, 2013 representing an increase of $916,082 from $4,765,877 as of August 31, 2013. The ratio of long term debts to total assets was 0.6 to 1 as of November 30, 2013.

These conditions raise doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our management plans to continue its efforts to raise funds through debt or equity, improve its profitability in the near future to sustain its operations.
 
 
9

 
 
The following is a summary of cash provided by or used in each of the indicated type of activities during the three months ended November, 2013 and 2012, respectively:
 
   
For the Three Months Ended November
 
 
 
2013
 (unaudited)
   
2012
(unaudited)
 
Cash provided by/(used in):            
Operating activities
  $ 229,511     $ 129,637  
Investing activities
    (169,602 )     (8,118 )
Financing activities
    247,220       (78,668 )
Effect of change of exchange rates
    182       (33 )
                 
Cash, beginning of period
    164,314       129,001  
Cash, end of period
  $ 471,625     $ 171,819  

Net cash provided by operating activities was $229,511 for the three months ended November 2013, as compared to net cash provided by operating activities of $129,637 for same period ended November 2012. The increase was mainly due to a net profit of $361,679, offset by accounts receivable of $(61,483), other receivables of $(57,913), accrued liabilities of $(35,081) accrued expenses for the Company and deferred revenue of $(36,276) due to the recognition of consultancy services provided to a third party with a fixed fee and term of four years.

Net cash used in investing activities was $(169,602)for the three months ended November 2013, as compared to net cash used in investing activities of $8,118 for the three months ended November 2012. The increase was mainly due to the partial payments on the acquisition of an intangible asset which was a client base from an independent unrelated third party and acquisition of subsidiary, TH Strategic Management Limited,which amounted to $38,705 and $112,826, respectively paid during the three months period ended November 30, 2013.

Net cash provided by financing activities was $247,220 for the three months ended November 2013, as compared to net cash used in by financing activities of $78,668 for the three months ended November 2012. The increase was primarily caused by repayment of related party advances (shareholder) of $209,601 and bank overdrafts of $74,398, and repayment of bank loans of $(30,641). The advances to shareholder represented unsecured, non-interesting bearing loans without fixed repayment terms. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to February28, 2014.

The Company had bank loans with outstanding principal of $2.3 million as of November 30, 2013. Summary of total bank loans is as follows:
 
Nature of loans
 
Terms of loans
 
Outstanding loan amount
 
Current annualized interest rate
 
Collateral
                 
Term loan
 
Ranging from 1 year to 25 years
  $ 2,256,142  
Ranging from annual rate from 0.38% to 6.98%
 
Property and personal guarantee from related party and third party
                   
        $ 2,256,142        

The valuations for the above collaterals on August 15, 2013 were approximately $3.7m while the total outstanding loan amount was approximately $2.3m.
 
 
10

 
 
The Company had assets held under capital leases, which represent leases of motor vehicle. The cost of motor vehicle under capital lease was $112,913 at November 30, 2013. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of November 30, 2013 are as follows:
 
   
Amount
 
Year ending August 31,
     
2014 (Nine months)
  $ 22,488  
2015     27,345  
2016     27,345  
2017     27,345  
2018     10,752  
Thereafter
    -  
Total minimum lease payment
  $ 115,275  
Less: Imputed interest
    (9,041 )
Present value of net minimum lease payments
  $ 106,234  
Less: Current maturities of capital leases obligations
    (23,775 )
Long-term capital leases obligations
  $ 82,459  

Material capital expenditure commitments

We anticipate that we will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. Currently, the Company has not entered into any agreements for any potential acquisitions. As a result, there are no material capital expenditure commitments as of November 30, 2013.
 
Contractual Obligations
 
The following table sets forth information regarding the Company's contractual payment obligations excluding the bank overdrafts of $0.8 million as of November 30, 2013.
 
    Payment due by period  
Contractual obligations
 
Total
   
< 1 year
   
1 - 3 years
   
3 - 5 years
   
> 5 years
 
                               
Borrowing:
                             
- Capital lease
  $ 115,275     $ 22,488     $ 54,690     $ 38,097     $ -  
- Bank loan
    2,256,142       76,905       232,556       169,745       1,776,936  
- Loan from a related party
    750,725       -       -       750,725       -  
                                         
Operating lease obligation:
                                       
- Office rental
    194,397       100,191       94,206       -       -  
    $ 3,316,539     $ 199,584     $ 381,452     $ 958,567     $ 1,776,936  

 
11

 
 
Off-Balance Sheet Arrangement

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

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

We may be exposed to interest rate risk in relation to the bank loans we maintain. The interest rate risk is managed by the Directors of the Company on an ongoing basis with the primary objective of limiting the extent to which interest expense could be affected by adverse movement in interest rates. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s post-tax profit for the three months ended November 30, 2013 would increase/decrease by US$3,614 as compared with the combined post-tax profit for the three months ended November 30, 2012.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
 
Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, as of November 30, 2013, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not currently a party to any pending material legal proceeding nor is it aware of any proceeding contemplated by any individual, company, entity or governmental authority involving the Company.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.
 
Item 3. Defaults Upon Senior Securities.

None.
 
Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.
 
 
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Item 6. Exhibits.
 
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
     
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
     
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
     
101*   The following financial information from our Quarterly Report on Form 10-Q for the quarter ended November 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements
_______________
*
In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
 
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SIGNATURES

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

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