UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Washington, DC 20549
FORM 10-K
FORM 10-K
x ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUSTAugust 31 2014, 2022
¨ ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-3427
|
|
|
| |
|
|
|
| |
|
|
Registrant’s telephone number, including area code: (852) 2374-0002
Commission file number: 000-54013
QUALITY ONLINE EDUCATION GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 42-1743717 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
Unit 1, 60 Riviera Dr.Markham, Ontario, CanadaL3R 5M1
Phone: 905-882-1585
(Address of Principal Executive Offices, Zip Code & Telephone Number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Sectionsection 12(g) of the Exchange Act:
Common Stock, ($.0001$0.0001 par value)value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ ☐ Nox ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ ☐ Nox ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes¨ ☒ No x☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx ☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| Accelerated filer |
|
Non-accelerated filer |
| Smaller reporting company |
|
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐ Nox ☒
TheState the aggregate market value of the voting and non-voting common equity held by non-affiliatesnon-affiliates: As of the registrant as of February 28, 2014, the last business day of the registrant’s most recently completed second fiscal quarter was $33,961,000. there is no active market for the registrant’s common stock.
The number of shares outstanding of the issuer’s Common Stock ($.0001 par value) of the registrant as of the close of business on February 10, 2015Oct 24, 2022 was 36,704,789. .
Documents Incorporated by Reference: None
ADGS ADVISORY, INC.
TABLE OF CONTENTSCONTENT
Page | |||||||
PART I | |||||||
ITEM 1. | BUSINESS | 1 | |||||
|
|
| |||||
ITEM 1A. | RISK FACTORS | 9 | |||||
|
|
| |||||
ITEM 1B. | UNRESOLVED STAFF COMMENTS | 19 | |||||
|
|
| |||||
ITEM 2. | PROPERTIES | 19 | |||||
|
|
| |||||
ITEM 3. | LEGAL PROCEEDINGS | 19 | |||||
|
|
| |||||
ITEM 4. | MINE SAFETY DISCLOSURES | 19 | |||||
|
|
| |||||
PART II | |||||||
| |||||||
ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 20 | |||||
|
|
| |||||
ITEM 6. | [RESERVED] | 21 | |||||
|
|
| |||||
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21 | |||||
|
|
| |||||
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 24 | |||||
|
|
| |||||
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY | 24 | |||||
|
|
| |||||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES | 25 | |||||
|
|
| |||||
ITEM 9A. | CONTROLS AND PROCEDURES | 25 | |||||
|
|
| |||||
ITEM 9B. | OTHER INFORMATION | 26 | |||||
|
|
| |||||
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 26 | |||||
| |||||||
PART III | |||||||
|
|
| |||||
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 27 | |||||
|
|
| |||||
ITEM 11. | EXECUTIVE COMPENSATION | 30 | |||||
|
|
| |||||
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 31 | |||||
|
|
| |||||
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 32 | |||||
|
|
| |||||
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 33 | |||||
| |||||||
PART IV | |||||||
|
|
| |||||
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 34 | |||||
|
| ||||||
SIGNATURES | 35 |
i |
Special Note Regarding Forward Looking Statements
Part I
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
Use of Certain Defined Terms
Except where the context otherwise requires and for the purposes of this report only:
|
| |
|
|
|
| |
|
| |
|
|
|
| |
|
| |
|
|
In China it is customary to refer to a person’s name with the family name first and the given name second. We have followed this convention with respect to certain Chinese individuals named in this report.
PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate”, “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.
You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Offering Circular, including in “Risk Factors” and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These factors include, among other things:
● | Our ability to effectively execute our business plan; |
● | Our expectations regarding demand for and market acceptance of our brand and service; |
● | Our ability to retain and increase our student enrollment; |
● | Our ability to engage, train and retain new teachers; |
● | Relevant government policies and regulations relating to our corporate structure, business, and industry; and |
● | General economic and business conditions; and our future business development, results of operations, funding, and financial condition. |
Item 1. Business.Although the forward-looking statements in this Offering Circular are based on our beliefs, assumptions, and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements, or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to re-issue this Offering Circular or otherwise make public statements updating our forward-looking statements.
1
General OverviewTHE COMPANY
We are primarily engaged in providing accounting, taxation, company secretarial, general corporate and consultancy services in Hong Kong.
The address of our principal executive office is 11/F, Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR. Our telephone number is (852) 2374-0002.
Corporate History and Background
ADGS Advisory,Quality Online Education Group Inc., which (the “Company”) was incorporated in the State of Delaware inon September 20, 2007 under the nameas Life Nutrition Products, Inc., and was previously a dietary supplement company specializing in the development marketing and distribution of all natural, proprietary, dietary supplements under the names Trim For Life® Appetite Control and Trim For Life® Energy Formula. Pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware and effective as of July 19, 2013, Life Nutrition Products, Inc.LNP changed its corporate name to ADGS“ADGS Advisory, Inc.
In our original business plan, we outlined a marketing strategy to compete more effectively in the dietary supplement marketplace. However, due to a lack of available financing, we were unable to implement the marketing strategy or invest in product expansion. We are no longer pursuing this business. As a result, we began to explore other viable options that may provide the potential to generate a positive cash flow to accommodate the costs of being a public company. With volatile economic conditions and unknown opportunities, we are unable to adequately determine if there are indeed, business opportunities that would lend to”. On May 14, 2021, the Company acquiring additional capital or having the available resourceschanged its name to construct such a deal.Quality Online Education Group Inc., and its symbol to “QOEG.”
On September 7, 2010, wethe Company entered into a Share Exchange Agreement (the “Conqueror Share Exchange Agreement”) with Conqueror Group Limited, a Hong Kong corporation (“Conqueror”) and Acumen Charm Ltd., a British Virgin Islands corporation (the “Conqueror Shareholder”). Pursuant to the Conqueror Share Exchange Agreement, at the closing of the transaction contemplated in the Conqueror Share Exchange Agreement (the “Conqueror Transaction”), the Company was to acquire 100% of the issued and outstanding capital stock of Conqueror from the Conqueror Shareholder, making Conqueror a wholly-owned subsidiary of the Company. There was no prior relationship between the Company and any of its affiliates and the Conqueror Shareholder and any of its affiliates.
The Closing was to transpire on or before January 31, 2011 but it did not occur by that date. However, as of May 11, 2011, among other things, Michael M. Salerno, the Company’s then sole officer and director, resigned as an officer and director of the Company, and appointed Chu Zhanjun and Li Gang as directors, and Chu Zhanjun as President, Chief Executive Officer and Principal Financial Officer of the Company, each a designee of Conqueror. As a result, a change in control occurred, due to the resignation of Mr. Salerno as sole officer and director, appointment of Mr. Chu as President, Chief Executive Officer and Principal Financial Officer of the Company, and appointment of Mr. Chu and Mr. Li as directors. At the time, the parties anticipated that the transaction contemplated by the Conqueror Share Exchange Agreement would not be completed at any time in future.
On December 7, 2012, Life Nutrition Products, Inc.LNP entered into a share exchange agreement (the “Originalthe Original Exchange Agreement”)Agreement with ADGS Advisory Limited, a Hong Kong corporation (“ADGS Hong Kong”) and ADGS Advisory (Holding) Limited, a British Virgin Islands corporation (“ADGS Holding”).Holding. Pursuant to the Original Exchange Agreement, at the closing of the transaction contemplated thereunder (the “Transaction”), the Companywe agreed to acquire 100% of the issued and outstanding capital stock of ADGS, Hong Kong, making ADGS Hong Kong a wholly-owned subsidiary of the Company. In consideration for the purchase of 100% of the issued and outstanding capital stock of ADGS Hong Kong, the Original Exchange Agreement provided that the Company would issue a total of 20,155,000 newly issued shares of the Company’s Common Stock.
On March 28, 2013, the Companywe entered into an amendment (the “Amendment”) to the Original Exchange Agreement (the Original Exchange Agreement, as amended is referred to hereinin this report as the “Exchange Agreement”) pursuant to which the Companywe agreed to acquire all of the outstanding shares of Almonds Kisses Limited (BVI), a British Virgin Islands company (“Almonds Kisses BVI”), from the eight shareholders of Almonds Kisses BVI (the “Shareholders”), instead of the shares of ADGS, Hong Kong, on the same terms and conditions set forth in the Exchange Agreement. Almonds Kisses BVI is the owner of 100% of the issued and outstanding capital stock of ADGS Hong Kong.ADGS. The Original Exchange Agreement incorrectly indicated that such owner was ADGS Holdings which error was corrected in the Amendment. The Shareholders wereare Tong Wing Yee, Tong Wing Shan, Tso Yin Yee, Pang Yiu Kwong, Sin Kok Ho, Fahy Roase-Collette, Tsang Kwai Chun and ADGS Holdings, each of whom executed the Amendment. In addition, on March 28, 2013, the parties to the Exchange Agreement entered into an Extension Agreement (the “Extension Agreement”) extending the closing date of the Transaction to on or before April 15, 2013.
OnThus, upon consummation of the Acquisition which occurred on April 12, 2013, the transactions contemplated by the Exchange Agreement were consummated whereby, among other things, the Company acquired all of the issued and outstanding capital stock of Almonds Kisses BVI in exchange for an aggregate of 20,155,000 newly issued shares of the Company’s Common Stock (the “Acquisition”).
As a result of the Acquisition, Almonds Kisses BVI became our wholly-owned subsidiary and the former shareholders of Almonds Kisses BVI became our controlling shareholders, and Almond Kisses BVI in turn owns all of the issued and outstanding capital stock of ADGS Hong Kong.ADGS. In January 2013, Almonds Kisses BVI also ownsbecame the owner of 100% of the issued and outstanding capital stock of Vantage, Advisory Limited, a Hong Kong corporation (“Vantage”) which was acquired by Almondscorporation. Almond Kisses BVI(BVI) in January 2013; 100%turn also owns all of the issued and outstanding capital stock of Motion Tech Development Limited, a British Virgin Islands company (“Motion Tech”), which was acquired in August 2013; and, 100% of the issued and outstanding capital stock of T H Strategic Management Limited, a Hong Kong corporation (“T H Strategic”), which was acquired in October 2013.Vantage. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company.company, and ADGS Tax owns a 30% interest in Dynamic Golden Limited which is also a Hong Kong incorporated company was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI.company.
2
Almonds Kisses BVI was incorporated on March 1, 2011 as a limited liability company in the British Virgin Islands (“BVI”) and, as originally constituted, was owned by the eight Shareholders identified above. ADGS Hong Kong is a Hong Kong corporation which was incorporated on April 28, 2011 and, as originally constituted, was solely owned by Tong Wing Yee and Tong Wing Shan (two of the shareholders of Almonds Kisses BVI) until being acquired by Almonds Kisses BVI pursuant to a transaction completed on April 30, 2011 in contemplation of the Acquisition. In this regard and in anticipation of effecting a transaction which resulted in the Acquisition, on April 30, 2011 Tong Wing Yee and Tong Wing Shan exchanged their shares for additional shares in Almonds Kisses BVI in order to create a BVI holding company structure for the operating business. British Virgin Islands holding companies have been utilized in Hong Kong for many years by entrepreneurs undertaking business in Hong Kong. Management believes such structure may provide certain advantages in the future in that shares held in a Hong Kong corporation are subject to a fairly substantial stamp duty on the transfer of any of such shares while the transfer of shares in a BVI company is not subject to any stamp duty in the BVI. In addition, Management further believes the BVI holding company structure may provide other benefits in the future including more corporate flexibility in that mergers can be effected by a BVI company compared to Hong Kong where a Hong Kong company is not able to merge with any entity insofar that a merger is not provided for under the Hong Kong Companies Ordinance.
Vantage is a Hong Kong corporation which was incorporated on March 6, 2008 and has been wholly owned by Almonds Kisses BVI since January 2013. Motion Tech is a British Virgin Islands company which was incorporated on October 7, 2007 and has been wholly owned by Almonds Kisses BVI since August 2013. Motion Tech is a property holding company which owns a residential property. T H Strategic is a Hong Kong corporation which was incorporated on March 16, 2010 and has been wholly owned by Almonds Kisses BVI since October 2013. ADGS Tax Advisory Limited (“ADGS Tax”) is a Hong Kong incorporated holding company incorporated on March 17, 2003 and owns certain customer lists and client bases which were purchased in 2005. ADGS Tax is 80% owned by ADGS Hong Kong. Dynamic Golden Limited which is also a Hong Kong incorporated company, which was 30% owned by ADGS Tax until NovemberOn July 19, 2013, and has since been 30% owned by Almonds Kisses BVI, owns an investment in residential real property located in Tuen Mun, New Territories, Hong Kong.
As a condition to the consummation of the Acquisition, on the Acquisition Date the officers and directors who were designees of Conqueror resigned as officers and directors of Life Nutrition Products, Inc. changed its name to ADGS Advisory, Inc. The Company also changed its symbol from LIPN to ADGS on such date. ADGS Advisory, Inc. is a holding company.
On December 11, 2019, Rhonda Keaveney purchased 1,000,000 shares of Convertible Preferred Series A Stock from the Company, resulting in Ms. Keaveney gaining voting control of the Company
On January 30, 2020, Rhonda Keaveney sold the controlling voting shares to Golden Panegyric Inc., and a change of control took place.
On June 26, 2020, Golden Panegyric Inc. sold the controlling voting shares to Xuye Wu, and a change of control took place.
On August 31, 2020, pursuant to the Share Exchange Agreement, the Company acquired Quality Online Education Group Inc., an Ontario company, in exchange for 3 Billion (3,000,000,000) shares of common stock of the Company, and a change of control occurred.
On May 14, 2021, the Company changed its name to Quality Online Education Group Inc., and its symbol to “QOEG.”
On August 25, 2022, the Company was qualified for the Reg A.
Our Office
Our principal executive office is located at Unit 1, 60 Riviera Dr. Markham, ON L3R 5M1.
Our Website
www.qualityonline.education
Our Business Objectives
Our principal business objective is to maximize shareholder returns through our online English programs for K12 and adults, white-label online tutoring services, and end-to-end management software solutions for education institutions. The company’s primary business is in educational services delivered through online and mobile education platforms that enable students around the world to take live interactive English lessons with highly qualified English native speaking teachers.
Our Mission
Our Mission is to develop students’ self-confidence so they can reach their goals through an enjoyable yet efficient learning experience.
3
Our Products
We have designed a holistic learning solution that enhances effective learning through the integration of live lessons, practice, and mentoring. Our academic materials for K12 students include pre-reading, picture books, videos, and songs. Through our custom-built mobile solutions, students and parents can set their goals and follow student progress in a one-stop service. Before taking lessons, students preview course materials using exercises and illustrations, supported by a pronunciation recognition and rating system. Our teaching assistants mentor students by coaching them on the proper learning methods and attending to their needs throughout the learning process. We have designed a holistic learning solution that enhances effective learning through the integration of live lessons, practice, assessment, and mentoring. Our live lessons allow for frequent interactions between students and teachers, which is a key factor in improving English communication skills. Assessments includes post-lesson quizzes, both of which help students better assess their learning outcome and identify areas for improvement.
Live lessons
One on one online lessons with native English speaker teachers
A majority of our students take live one-on-one lessons. Lessons are typically 25 minutes long. Teachers and students interact using real-time audio and visual streaming technology. Our teachers provide instructions using our standardized curriculum. Teachers are allowed to adjust the pace of each lesson according to student performance and reaction, thus accommodating students across all learning curves.
In order to give students a consistent and seamless learning experience, we arrange the same teacher for most of the classes for each student, and the new officersteaching assistants regularly review the feedback from students, their parents, and directors identified below were appointedthe teachers.
We pack our lessons into 3 groups – 75 lessons valid for 9 months, 150 lessons valid for 18 months, and 300 lessons valid for 36 months. The unit lesson price is different regarding the package the students choose and the teacher’s teaching experience and background, ranging from USD $6.5 to $17.2.
Small class lessons with native English speaker teachers
In April 2021, we launched our small class program to give students more options that cater to their needs to learn with peers, with a fixed schedule, fixed classmates, and fixed teachers.
Students opting in for small class lessons will choose a class with a fixed teacher designated for the class and a fixed weekly schedule for a period of approximately three months. Students will take two lessons each week. Each lesson comprises two 25-minute sessions. Each small class is composed of up to four students. The small class lesson format encourages students to interact with the teachers and classmates and engage students in the in-class environment through learning with the same groups of classmates and teachers every time.
We offer the lesson in 3 groups – autumn term package, spring term package, and 1-year package. About 60 lessons for each term and 120 lessons for 1 year. The unit lesson price is USD $ 4.15.
Effective Practice
Students are encouraged to preview course materials through our APP platform. Pre-lesson learning is particularly important, as officerssuch a process allows young students to engage in more productive interactions with teachers during live lessons.
Our pre-lesson studying system contains key vocabulary, word pronunciation practice, and directorsgrammar learning points. Our system is interactive, featuring audio functions that allow students to hear the correct pronunciation of Life Nutrition Products, Inc.key vocabulary words and model sentences. Students can record their pronunciation of individual words to be graded by our system. To build a more instinctive understanding of the English language for our students, our pre-lesson studying system relies on cartoons or interesting graphic stories to explain the meaning of vocabulary and phrases, rather than simply presenting the translation.
4
As indicated above, T H Strategic has beenMentoring by local service team
We maintain a wholly owned subsidiarypool of Almonds Kisses BVI since October 2013. Such acquisition was completed pursuantservice teams or teachers for our students all around the world. The customer service is provided by a third-party service partner. We are planning to an Agreement for Salehire local service teams as our customer base grow in France, Brazil, Thailand and PurchaseVietnam. We have established stringent selection criteria and will make hiring decisions based on education service experience.
Business Partners
We also provide a one-stop educational service to our business partners, including recruiting native English speaker tutors, customizing teaching content, and training the tutors. We provide native English speaker tutor recruiting and training services to business customers. Given the interactive nature of Shares entered into by Almonds Kisses BVI with Li Hon Lun pursuantour lessons and targeting students, we seek to which on October 20, 2013 Almonds Kisses BVI acquired allengage teachers who have a strong command of the issuedEnglish language and outstanding sharesgood communication skills. Prospective candidates must go through a resume screening, phone interview screening, pre-service orientation, new teacher training, and demonstration to be qualified to deliver live lessons to our students. We also leverage the native English speaker tutor recruiting and training services to business customers.
Teacher engagement
Our teachers from the Philippines and North America have high English proficiency and experience in service industries or the education industry. The individual skill sets and backgrounds of T H Strategicprospective teachers, combined with our rigorous selection and training program, have enabled us to build a team of passionate and patient teachers who are highly qualified to assist students in meeting their learning objectives. The majority of our teachers are university graduates in the Philippine, including many from Li Hon Lun. T H Strategicreputable universities, medical and nursing schools, as well as experienced teachers. For our American Academy program, we mainly engage teachers from North America with primary school and kindergarten teaching experience.
We attract applicants through various online social media platforms and career websites and regularly participate in job fairs in the Philippines.
Teacher training and development
Through the ongoing online enhancement of teaching methods and teacher training centers in the Philippines, most of our teachers can develop the skills to communicate key learning points more effectively to our students. We believe that empowering our teachers with these skills is essential to improve the student experience and ensuring that our students receive a Hong Kongquality education. We also add requirements and customize the training content according to the demand or the business customers.
The newly engaged teachers are generally required to undergo standard training programs that focus on the curriculum from us or business customers, teaching skills in a live lesson setting, as well as the learning about the behavior and objectives of different types of students. After completing our new teacher training program, the candidates will be assessed by our team of experienced evaluators before they are allowed to offer lessons on our platform or start the service for our business customers.
The teachers are ranked according to student feedback and peer evaluation process. Teachers must accumulate the required amount of teaching hours, maintain high student ratings, and complete the training modules to get a promotion or salary increase. Our training program is updated and customized based accountingon changes to our curriculum, the demand of business customers, and feedback from our quality assurance team and students.
Description of the Business
Quality Online Education Group Inc. (QOEG) is an E-learning company that provides comprehensive online lessons to students in different parts of the world. We deliver quality education to students and noticeable results from our passionate teachers and teaching assistants. We combined Education and Entertainment (Edu-tainment) as part of our method. It is our mission to develop confidence in our students so they can reach their goals with happiness and efficiency! The main business scope of the Group includes K12 English Online education services, courseware development, an exam preparation course of International English Language Testing System (IELTS) for adults, and business consulting firm.Education-technology platform development.
5
In consideration for acquisitionMost of our management team is based in Ontario, Canada. Most of the issuedfull time tutors we hire are in the Philippines. Our main operation functions such as accounting, education content, R&D, IT, and outstanding sharesmarketing are based in Toronto. We have tutor resource management vendors in the Philippines. We have sales partners in Southeast Asia, Europe and South America. Historically, Tianjin Zhipin Education Technology Co., as a sales and service center for Chinese customers, collected the revenue from Chinese customers and Quality Online Education Group Inc. (Ontario) collected the revenue from the customers of T H Strategic, Almonds Kisses BVI agreedother areas. The Company adjusted the organization structure in September 2021. All the revenues including those from China is collected by Quality Online Education Group Inc. (Ontario). From Dec 2021, we stopped acquiring new students from mainland China. The Company ceased offering tutoring services to students in mainland China in the end of April 2022.
Our Strategy – Business Plan
Quality Online Education Group, QOEG’s operating company, was founded in August 2018 in Ontario Canada with a global reach. We provide comprehensive online English lessons to students around the world. English education resources are unbalanced between areas. The students in some of the Southeast Asia and European countries are extremely under-served. To address this unmet need, we have developed online and mobile education platforms, customized the content and optimized the marketing method to provide high quality yet affordable products that enable students around the world to take live English lessons with English native speaking teachers. We connect our students with highly qualified foreign teachers. The teachers have gone through our rigorous selection and training process before they deliver lessons to the students. We hire, train, and manage our tutors for North America and the Philippines.
Our market consists of students from K12 to adults. The lessons we provide are focused on the interaction and application of English as well as test preparation such as IELTS.
While remaining based in Canada, we have successfully launched a direct selling model around the world. This business model is cost-effective, enabling us to save significant sales and marketing dollars and build a stronger cash flow outlook compared to the competitors who only use online advertising.
We are also launching small group lessons, one teacher teaches 2-4 students online at the same time, which unit price is lower than other competitors, which may be affordable for more students in our target cities yet with a higher margin.
We intend to further develop our sales of our online products through making it available and recognized in more and more countries in need of English teaching resources. Moreover, we anticipate a greater margin of profit by increasing the student retention rate and launching new product lines, like group lessons.
All our cash is paid directly by our customers to our Canadian company. We pay Li Hon Lunservice expenses and sales commissions to the sumservice partners in different countries for the local customer service.
Competitive Conditions
The online English education services market in general is fragmented, rapidly evolving, and highly competitive. We also face competition from other online and mobile platforms or internet companies that plan to expand their business into English education.
We believe that the principal competitive factors in our markets include the following:
● | scope and quality of course offerings; |
● | quality and performance of the teachers; |
● | overall student experience and satisfaction; |
● | ability to effectively market course offerings to target customer groups, and |
● | cost-effectiveness of courses; |
6
We believe that we are well-positioned to effectively compete in the selected cities’ market in which we operate on the basis of HK $4.0 million (approximately US $516,000) payableour innovative approach to acquire students, scalable and efficient business model, extensive and high-quality teacher network, high course quality, and experienced management team caring about all the stakeholders including students, parents of our students, business partners, as well as the tutors.
However, some of our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical, or marketing resources than we do. For a discussion of risks related to competition, see more discussion in four equal“Risk Factors”.
Sales and Marketing
To customer business marketing and sales
We market our platform through a combination of online social media and offline channels, and we also generate sales leads through referrals, which we called “The Mommy Influencer Sales”.
The Mommy Influencers
We have historically generated a significant percentage of our sales leads through word-of-mouth referrals by our students and their parents in K-12 product lines. New enrollments through word-of-mouth referrals have benefited from the rapid growth in our student base, as well as our reputation, brand, and the proven learning results of our students. We integrated social network functionalities into our mobile app, such as sharing functions with WeChat, to encourage students to share their learning experiences with their friends. We believe the rapid growth of our K-12 student base, greater brand awareness, and the success of our K-12 students in achieving their English learning objectives lead to more word-of-mouth referrals and the purchase of larger course packages by our K-12 students initially.
We have a KOL (Key Opinion Leader) marketing ecosystem in online and offline communities, including online social media groups and offline training camps. the KOLs bring significant leads to our sales team. We pay influencers when their referrals end up buying the products. It’s known in marketing circles as fission sales. To support this sales model, we developed a virtual campus system and recruit headmasters for the virtual campus. Each headmaster manages a group of mummy influencers who provide leads to our telemarketing team.
Our telemarketing teams follow-up on sales leads by providing additional information and support and trying to convince prospective students to enroll in our free trial lessons. Our course consultants then follow up with prospective students who have taken our free trial lessons and promote course packages most suited to each student’s background, proficiency, and learning objectives.
Branding
We are focused on promoting our brand and increasing the overall effectiveness of our sales and marketing efforts. In 2019, we engaged Chris Downs, a Canadian educator, author, teacher, celebrity, and popular guest star of a TV series and movies in China. We believe Chris’s success in his career and image echoes with our company principle on delivering good quality education for all the students.
To business marketing and sales
We also provide online English tutor solutions to business customers by direct sales model. We help the business customers build up their own brand online English lessons or add native English speaker tutors. Many small-medium education centers and institutions around the globe are interested in expanding their product line to foreign teacher English lessons, for example, after school tutoring centers, kid’s picture book clubs, immigration agencies etc.
We provide holistic solutions to business customers including recruiting, training, and managing the tutors. Our dedicated corporate sales force regularly communicates with potential business clients in every city we enter.
7
Regulation
From Dec 2021, we stopped acquiring the students live in mainland China. In compliance with the New Regulation, the “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education” published in July 2021 by the General Office of the CPC Central Committee and the General Office of the State Council of the PRC, the Company ceased offering tutoring services to students in mainland China in the end of April 2022.
About 550 students in mainland China were still active, which was about 1/3 of our monthly installmentsactive students by end of HK $1.0 million (approximately US $129,000) each. AllFeb 2022. The lessons of such installmentsthose active students were paiddelivered, and contracts were terminated by the end of February 2014.April 2022. We haven’t had any operations in China since then.
During fiscal 2014,The Administrative Measures on Internet Information Services, or the ICP Measures, promulgated by the PRC State Council and as last amended on January 8, 2011, sets forth more specific rules on the provision of internet information services. According to the ICP Measures, any company that engages in the provision of commercial internet information services must obtain a sub-category VATS License for Internet Information Services, or the ICP License, from the relevant government authorities before providing any commercial internet information services within the PRC. The Company also acquired two client bases from an unrelated partydoes not have a proper ICP license after the termination of the only existing VIE contract with Tianjin Zhipin Education Technology Co., Ltd.
On July 24, 2021 China’s official state media, including Xinhua News Agency and China Central Television, announced the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for considerationStudents in Compulsory Education (the “Opinion”), issued by the General Office of approximately $155,000 and $322,477 respectively (HK$1.2 million and HK$4 million respectively). The consideration of one of them was payable in four equal monthly installments of $38,700 (HK $300,000) each. All of such installmentsthe CPC Central Committee and the amount due for the other client base have been paid.
The chart below presents our corporate structure:
| ||||
| ||||
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| ||||
| ||||
|
The following table lists the directors and officersGeneral Office of the foregoingState Council. The Opinion contains high-level policy directives about requirements and restrictions related to online and offline after-school tutoring services, including, (i) foreign capital is prohibited from controlling or participating in Academic AST providers through merger and acquisitions, entrusted operations, joining franchise or using variable interest entities. (ii) banning foreign teachers located overseas from providing tutoring services in China.
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
Recent DevelopmentsThis Opinion does affect the operation in China. The company made following restructurings and decisions.
On July 30, 2014, the Company, through ADGS Hong Kong, entered into a Customer List Purchase Agreement (the “July 2014 Purchase Agreement”) with Lau Kam GeorgeDue to PRC legal restrictions on foreign ownership and Yung Chi Shing (collectively, the “Sellers”) pursuant to which ADGS Hong Kong has agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong.
In consideration for the acquisition of the customer list, ADGS Hong Kong has agreed to pay the Sellers the sum of approximately US $1.5 million (HK $12.0 million) and 5,000,000 shares of the common stock of the Company. Such amount is to be paid as follows: (i) approximately US $258,000 (HK $2.0 million) upon signing of the July 2014 Purchase Agreement which amount has been paid, (ii) approximately US $387,000 (HK $3.0 million) on or before March 30, 2015, and (iii) the balance of the purchase price of approximately US $903,000 (HK $7.0 million) in 18 monthly installments commencing one month after closing. The shares of common stock are to be issued at closing. Subsequent to the year ended August 31, 2014, and in January 2015, the Company paid half of the second installment described above.
The closing of the acquisition is subject to various conditions including but not limited to ADGS Hong Kong being satisfied in its due diligence review following the execution of the July 2014 Purchase Agreement that revenues for the period of April 1, 2013 to June 30, 2014 meet the amount of HK $10.0 million (approximately US $960,000). The closing, which is expected to occur on or before March 30, 2015, is subject to the delivery of the customer list by the Sellers, and each of the Sellers having entered into mutually acceptable employment agreements and operating agreements with ADGS Hong Kong. Following the closing, the amount of the aggregate purchase price will be adjusted based upon revenues achievedinvestment in the 14 month period followingvalue-added telecommunications market, we operated our online platform through Tianjin Zhipin Education Technology Co., Ltd, our consolidated variable interest entity, or VIE, in the closing.PRC. Tianjin Zhipin Education Technology Co., Ltd held our ICP license necessary to operate our online service in China. We relied on a series of contractual arrangements among Tianjin Zhipin Education Technology Co., Ltd and its shareholders to operate our online and mobile platforms in China. We did not have equity interests in Tianjin Zhipin Education Technology Co., Ltd. However, as a result of these contractual arrangements, we were the primary beneficiary of Tianjin Zhipin Education Technology Co., Ltd and treat it as our consolidated VIE under U.S. GAAP.
On August 20, 2014,We terminated the Company acquired 2% of the issuedVIE contract in September 2021 and outstanding capital stock of Elite Global Group Limited (incorporated in Hong Kong) (“Elite Global”) fromentered a new service contract with Tianjin Zhipin Education Technology Co., Ltd as one of the then two shareholders of Elite Global forsuppliers on global online market research, education consulting and information technology consulting service. Our agreement with Tianjin Zhipin Education Technology Co. is attached hereto as an Exhibit. By the sum of approximately $2,000,000 (HK $15,000,000) payable by the transfer of certain receivables due to a subsidiarytermination of the Company. Elite Global has entered into a Preliminary Development Agreement with Viacom Media NetworksVIE contracts the company also does not have proper ICP license to construct and establish a new entertainment theme parkdeliver online education service to students in mainland China. Thus, we ceased the operations in China in the PRC. Elite Global is expected to submit a development plan for Viacom’s approval and then obtain a license to operate the theme park. end of April 2022.
The Company is not aware of the proposed timeframe for completion of the foregoing. In addition, Elite Global is a partyplanning to a Joint Venture Agreement with Simson Giftware which operates and manufactures merchandise for theme storesinvest in Taiwan and Hong Kong. Pursuant to the agreement with the seller of the shares, the Company retains the right to request the seller to buy back allTianjin Zhipin Education Technology Co., Ltd. or part of the shares purchased at $2,000,000 or such proportionate amount, if any after August 20, 2015.
The Company was also a party to a Memorandum of Understanding entered into with Elite Global pursuant to which the Company was to provide certain consulting and advisory servicesother companies in connection with the construction of the proposed entertainment theme park in the PRC. Such Memorandum of Understanding isChina. We no longer own any companies or invest in effect.
Description of Business
General
We provide a wide range of servicesany companies in Hong Kong to individuals, small and medium sized businesses and charitable organizations in accounting, taxation, company secretarial, general corporate and consulting services. All of our business operations and services are performed in Hong Kong. However, we also maintain branch offices in Shenzhen, PRC and Bangkok, Thailand for marketing purposes only in order to attract potential clients to use our services in Hong Kong for businesses or other ventures which such potential clients may maintain in Hong Kong. Our primary business segments are described below.
Accounting and Corporate Services
Accounting
Our team of accounting business professionals can provide general accounting services for a business, including, but not limited to, bookkeeping services, including preparing a general ledger for a client, spreadsheet, income statements, cash flow statements and balance sheets, which services can be performed monthly, quarterly or annually; preparing other accounting and financial reports; providing assistance in managing compliance obligations; preparing and filing tax returns; providing assistance with payroll and invoicing, strategic planning, financial modeling and cash flow; evaluating accounting systems and processes; reporting key performance indicators and benchmarks; performing a business health check; and, providing a strategic cost management. Our business professionals can offer practical accounting and business solutions to assist our clients in identifying risks and opportunities, ensuring that their business remains profitable and competitive, and providing general guidance in building wealth and protecting assets.
Corporate Services
We believe our staff can provide expert advice and practical assistance to a company in managing its regulatory and reporting obligations along with monitoring its compliance and secretarial responsibilities. Such services which we can offer include:
|
| |
|
| |
|
| |
|
| |
|
|
Tax Advisory
We have practicing members of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) with more than ten years of taxation experience who can provide tax planning services for our clients. Such services can include:
|
| |
|
| |
|
| |
|
| |
|
|
Corporate Restructuring and Insolvency
We recognize that each year, there will be a percentage of unsuccessful businesses resulting in liquidation or company restructuring. We can offer the services of highly qualified insolvency practitioners whose goal is to rescue the situation and avoid formal bankruptcy or insolvency proceedings.
Our approach to client relationships is underpinned by a partner-led delivery of services. We have found that our partner-led approach creates a greater sense of trust, due to the stronger personal relationship developed. In this regard, we have an established history of working closely with financial institutions, law firms and smaller accountancy firms.
Our team of professionals has extensive local knowledge in conducting business reviews and advising lenders, directors and other stakeholders on options available to enterprises facing financial hardship. We can help a business to develop strategies to maximize returns and preserve the value of the business. Our services encompass all facets of:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Multi-Disciplinary Advisory
Forensic and Litigation Advisory
We provide multidisciplinary, independent dispute advisory, investigative, data acquisition/analysis and forensic accounting services to clients throughout the life cycle of a litigation. Our team supports clients facing high stakes litigation, arbitration and compliance investigations, and regulatory scrutiny.
Our services include:
|
| |
|
| |
|
| |
|
|
Engineering Services
We can provide a diversified range of engineering services including waterworks engineering, water distribution system maintenance, slope safety detection, landslide risk prevention methods and buried water conduit testing. EstablishedChina as a remedial specialist in Hong Kong, we have carried out small to large scale projects on behalf of public sector bodies.foreign investor.
Quantity Surveying
The function of the quantity surveyor is estimating and controlling construction cost. We can provide construction cost advice, construction cost estimating and advice relating to construction services which are affordable and tailored to a client’s specific needs. Quantity surveying services range from preliminary cost estimates during feasibility, project management and cost control during construction and tax depreciation schedules and sinking fund forecasts during post construction.
Business Development Service in PRC and Thailand
Although all of our business operations and services are performed in Hong Kong, we also maintain branch offices in Shenzhen, PRC and Bangkok, Thailand for marketing purposes only in order to attract potential clients to use our services in Hong Kong for businesses or other ventures which such potential clients may maintain in Hong Kong. In connection therewith, we have retained an individual who is a professional accountant and has been an investment bankerCompany’s compliance with approximately 30 years of experience in the PRC and Australia to manage this new area of business for us. We believe there are a sufficient number of individuals and other entities in both the PRC and Thailand with business dealings in Hong Kong that justify our marketing efforts in those areas. However, there can be no assurance that wethese measures will be able to successfully manage and grow our business through such marketing efforts in both the PRC and Thailand.
Market Analysis
Although there are many consulting companies in Hong Kong providing similar services, we believe that that there a few consulting companies in Hong Kong that have professional standards equal to ours in the business segments in which we provide service. We believe the Company has a solid and loyal client base in a market that has experienced a certain level of sustained growth in recent years.
The following market trends seem to be the most important to our business:
Trend 1 – Accountancy service. Accountancy is a growing market. The tightening of financial regulations, in the wake of a number of recent scandals, and the onus being put on small businesses/individuals to submit accounts that meet stricter standards of compliance, should contribute to continued growth for the Company. Financial reporting and corporate governance are growth areas. The trend to outsource services is well established for businesses, and we believe such trend will continue and increase with the difficulty many companies face in finding suitable employees.
Trend 2 – Bookkeeping service. Presently, many small companies do not have full-time accountants for their accountancy work, and we believe many will use the services of an outside accountant or company to minimize operating costs and achieve a higher level of financial management oversight. Businesses regularly need the services of a qualified accountant to help compile or check that financial records are in order and up to date.
Trend 3 – Company secretarial service. According to Hong Kong Companies Ordinance, every company shall have a secretary. The company secretary shall (a) if an individual, ordinarily reside in Hong Kong; (b) if a body corporate, has its registered office or place of business in Hong Kong. The company secretary can also be a director. However, if there is only one director, he/she/it shall not also be the secretary of the company. We believe many companies in Hong Kong have only one director so they need to appoint a company secretary. Such services are offered and can be performed by us.
Trend 4 – Corporate recovery and insolvency services. As described above, each year there will be a percentage of unsuccessful businesses resulting in liquidation or company restructuring. We can offer the services of highly qualified insolvency practitioners. Our Chief Operating Officer, Tso Yin Yee and our Senior Assurance & Business Advisory Consultant, Pang Yiu Kwong are experienced insolvency practitioners having being appointed as Joint and Several Provisional Liquidators under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region.
Trend 5 – General consulting. With growing competition, increasing economic and business sophistication and regulatory compliance requirements, more companies need advice and strategies from experts and consultants across a wide range of specialties.
Customers
As mentioned above, our services are primarily provided to individuals, small and medium sized businesses and charitable organizations. In addition to our marketing efforts to attract potential new clients, we have in the past purchased customer lists and client bases from unrelated third parties in order to increase our customer base. Prior to our formation, customer lists and client bases were purchased in 2005 by ADGS Tax and customer lists and client bases were purchased in 2011 by ADGS Hong Kong. Such customer lists and client bases were purchased from unrelated accounting firms and secretarial companies and are accounted for as intangible assets and amortized using the straight line method over a period of 10 years. In addition, in September 2013, we acquired a new client base from an unrelated party, and in October 2013, we further increased our client base by purchasing all of the issued and outstanding shares of TH Strategic whereby TH Strategic became a wholly owned subsidiary of Almonds Kisses BVI. TH Strategic is a Hong Kong based accounting services and business consulting firm. In the future, we expect that we will seek to purchase other customer lists and client bases, as well as possibly purchasing other businesses, as part of our overall growth strategy, although there can be no assurance that we will be able to do so on terms which will be acceptable to us.
See “Recent Developments” above for information on the Customer List Purchase Agreement entered into on July 30, 2014 with Lau Kam George and Yung Chi Shing (collectively, the “Sellers”) pursuant to which ADGS Hong Kong has agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong. The transaction is expected to close on or before March 30, 2015.
Our Competition
Competition in the general field of business consulting is quite intense in Hong Kong. Although numerous established companies offer a variety of services to different customer segments, we consider competition in our focus market niche of small and medium business to be modest. Customers in this segment strongly rely on the consultant’s professional qualifications and the ability to come up with viable solutions in a timely and cost effective manner. Although we believe that we have unique strengths compared with our competitors, our industry is highly competitive and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors across the country, some of which have significantly greater financial, marketing and other resources than we have. New or existing competition that uses a business model that is different from our business model may put pressure on us to change so that we can remain competitive.
We believe we achieve a competitive edge among the bookkeeping and accountancy services due to the combination of CPA oversight we maintain with lower-level, inexpensive labor. Clients will receive the advantage of having a CPA review their books and provide additional advice when appropriate, while not paying much more than they would to hire their own bookkeeper.
In addition, for other consultancy services such as taxation, insolvency and other general consulting, we have a wide range of professionals in house who can provide complete, reliable and high quality services to our clients.
We believe the larger consulting firms tend to ignore the small business market because they are better positioned to serve larger businesses. Many of these large consulting firms have several hundred employees and we believe are generally not interested in dealing with small and medium business. In addition, we believe we offer more diversified services than many other small consulting companies who tend to offer services to particular industries and restrict themselves in the services they offer.
Government Regulation
Our services generally are not subject to governmental regulation in the markets in which we operate. However, our clients may require that we comply with certain rules and regulations even if those rules and regulations do not actually apply to us. In addition, our clients may require that certain of our service providers who provide services maintain certain professional licenses in order to provide the appropriate services for that particular client. We are also governed by laws in Hong Kong regulating the employer/employee relationship, such as tax withholding and reporting, social security or retirement, anti-discrimination and workers compensation. Failure to comply with any applicable laws and regulations could result in restrictions on our ability to provide our services, as well as the imposition of fines and penalties, which could have a material adverse effectimpact on its existing business in the countries other than China. To make sure our operations.customers are not from mainland China, we stopped the marketing and sales activities in mainland China, and the updated service agreement required the customers announce that they are not living in mainland China. Our updated service agreement is attached hereto as an Exhibit.
8
Our Employees
We currently employ 30 full time people consisting of 3 executive management, 5 senior consultants and 22 staff. We require our employees to have appropriate education, training or work experience in their respective fields. We believe that our management team possesses in-depth knowledge critical to our Company’s success and is capable of identifying and seizing market opportunities, and implementing our business plans. We believe we are in material compliance with all applicable labor and safety laws and regulations in Hong Kong.
ItemITEM 1A. Risk Factors.RISK FACTORS
RISK FACTORS
General Risks
An investmentThe Company is a Smaller Reporting Company
QOEG (as this is the name of the ticker symbol) is a “smaller reporting company.” Investing in our common stockCommon Stock involves a high degree of risk. You should carefully consider
● | We may be unable to invest the proceeds of this offering on acceptable terms, or at all. |
● | We are dependent on our key personnel for our success. The departure of any of our executive officers or key personnel could have a material adverse effect on our business. |
● | Our growth depends on external sources of capital, which may not be available on favorable terms or at all. |
● | Investors participating in this offering will incur immediate dilution. |
Contingent or unknown liabilities could materially and adversely affect our business, financial condition, liquidity and results of operations.
We may in the risks described below, togetherfuture acquire online education companies, subject to liabilities and without any recourse, or with allonly limited recourse, with respect to unknown liabilities. As a result, if a claim were asserted against us based on ownership of any of these properties, we may have to pay substantial amounts to defend or settle the claim. If the magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected.
It is possible that investors may lose their entire investment.
We will be reliant on the proceeds of this offering to expand our operations. We may not be successful in implementing our business strategy or that we will be successful in achieving our objectives. Our prospects for success must be considered in the context of a thinly capitalized company in a highly competitive market. As a result, investors may lose their entire investment.
9
Risks Related to Financing Our Business
Expenses required to operate as a public company will reduce funds available to develop our business and could negatively affect our stock price and adversely affect our results of operations, cash flow and financial condition.
Operating as a public company is more expensive than operating as a private company, including additional funds required to obtain outside assistance from legal, accounting, investor relations, or other information included in this report, before making an investment decision.professionals that could be more costly than planned. We may also be required to hire additional staff to comply with additional SEC and OTC Markets reporting requirements. We anticipate that these costs will be approximately $100,000 annually. Our failure to comply with reporting requirements and other provisions of securities laws could negatively affect our results of operations, cash flow and financial condition.
Our growth depends on external sources of capital, which may not be available on favorable terms or at all. In addition, investors, banks, and other financial institutions may be reluctant to enter into any lending or financial transactions with us, because we intend to enter into the cultivation and production of sustainable agriculture. If any of the following risks actually occurs,source of funding is unavailable to us, our growth may be limited, and our operating profit may be impaired.
We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment relating to the sustainable agriculture industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all. Because we intend to grow our business, this limitation may require us to raise additional equity or incur debt at a time when it may be disadvantageous to do so.
Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions and the market’s perception of our current and potential future earnings. If general economic instability or downturn leads to an inability to obtain capital to finance, the operation could be negatively impacted. In addition, investors, banks, and other financial institutions may be reluctant to enter into financing transactions with us, because we intend to acquire properties for the use in the cultivation and production of sustainable agriculture. If this source of funding is unavailable to us, our growth may be limited.
Our ability to raise funding is subject to all of the above factors and will also be affected by our future financial position, results of operations and cash flows. All of these events would have a material adverse effect on our business, financial condition, liquidity, and results of operations.
Any future indebtedness reduces cash available for distribution and may expose us to the risk of default under debt obligations that we may incur in the future.
Payments of principal and interest on borrowings that we may incur in the future may leave us with insufficient cash resources to operate the business. Our level of debt and the limitations imposed on us by debt agreements could have significant material and adverse consequences, including the following:
● | our cash flow may be insufficient to meet our required principal and interest payments; |
● | we may be unable to borrow additional funds as needed or on favorable terms, or at all; |
● | we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; |
● | to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense; |
● | we may default on our obligations or violate restrictive covenants; in which case the lenders may accelerate these debt obligations. |
● | our default under any loan with cross default provisions could result in a default on other indebtedness. |
If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our shareholders could suffer. In that case, the trading price of our common stock could decline,be materially and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward-Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.adversely affected.
10
Risks Related to Our Organization, Structure and Business
The change of the business in recent months may be unsuccessful.
In December of 2021, we stopped acquiring students who live in mainland China. In compliance with the New Regulation, the “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education” published in July 2021 by the General Office of the CPC Central Committee and the General Office of the State Council of the PRC, the Company ceased offering tutoring services to students in mainland China in April 2022. We delivered all the services in active contract before the cessation. Our failure to now further increase our student enrollment could negatively affect our results of operations, cash flow and financial condition.
Our company hasWe are dependent on our key personnel for our success.
We will depend upon the efforts, experience, diligence, skill, and network of business contacts of our senior management team; therefore, our success will depend on their continued service. The departure of any of our executive officers or key personnel could have a material adverse effect on our business. If any of our key personnel were to cease their employment, our operating results could suffer. Further, we do not intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel.
We believe our future success depends upon our senior management team’s ability to hire and retain highly skilled managerial, operational, and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.
Furthermore, we may retain independent contractors to provide various services for us, including administrative services, transfer agent services and professional services. Such contractors have no fiduciary duty to us and may not perform as expected or desired.
We have a limited operating history with our current business model, which makes it difficult to predict our future prospects and financial performance.
We have only been engaged ina short operating history with our current business operationsmodel. Our business since March 2011. Dueinception has generated limited gross billings and revenues, and may not produce significant gross billings and revenues in the near term, or at all, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our operations. If we do generate significant gross billings and revenues in the future, we expect it will be largely from the sale of our English course packages on our online and mobile education platforms. You must consider our business and prospects in light of the risks and difficulties we may encounter as an early-stage operating company in a new and rapidly evolving industry. We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results, and financial condition.
Our senior management team will manage our business subject to very broad management guidelines and generally will not seek board approval for each management decision.
Our senior management team has discretion over the use of proceeds from this limited operating history, it may be difficultoffering, and you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our business prospects and financial performance. While we achieved net income foroperations that are not described in this offering circular or other periodic filings with the fiscal years ended August 31, 2014 and 2013, we sustainedSEC. Furthermore, currently a net loss for eachsubstantial portion of the fiscal years ended August 31, 2012net proceeds of this offering is not specifically committed to any specific projects or business. We will rely on the senior management team’s ability to execute the business plan, subject to the oversight and August 31, 2011. Thereapproval of our board of directors. Accordingly, you should not purchase Common Stock of the Company unless you are willing to entrust all aspects of our day-to-day management to our senior management team.
Our board of directors may change our operation objectives and strategies without shareholders’ consent.
Our board of directors determines our major policies, including regarding financing, growth, debt capitalization, distributions, and other material events. Our board of directors may amend or revise these and other policies without a vote of the shareholders. Under our Articles of Incorporation and Bylaws, our shareholders generally have a right to vote only on the following matters:
11
● | change the name or other designation or the par value of the Common Stock; |
● | increase or decrease the aggregate number of Common Stock that we have the authority to issue; |
● | increase or decrease the aggregate number of Common Stock that we have the authority to issue; our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory merger or acquisition. |
● | All other matters are subject to the discretion of our board of directors. |
The fact that we have generated operating losses in the past raises doubt about our ability to continue as a going concern.
The Company may generate operating losses before the expansion of our courses and students. We may have to cover any shortfall in operating capital from sales of equity and debt securities, but there can be no assurance that we can maintain profitability beyond fiscal 2014. Further,will continue to be able to do so. The unpredictable economy in the United States and Canada and the volatile public or private equity markets may make it more difficult for us to raise capital as and when we need it, and it is difficult for us to assess the impact this might have on our operations or liquidity. If we cannot raise the funds that we require to continue our business operations, there is a substantial risk that our business will fail.
We may be unable to attract and retain qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.
Our success depends to a significant degree upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future, operating resultswe may find recruiting and retention efforts more challenging. If we do not succeed in attracting, hiring and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively. The loss of any key employee, including shareholders of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industries could harm our business.
If we are not able to continue to attract students to purchase our course packages and to increase the spending of our students on our platform, our business and prospects will be materially and adversely affected.
Our ability to continue to attract students to purchase our course packages and to increase their spending on our education platform, are critical to the continued success and growth of our business. This in turn will depend upon a number ofon several factors, including our ability to effectively market our platform to a broader base of prospective students, continue to develop, adapt, or enhance quality educational content and services to meet the evolving demands of our existing or prospective students and expand our geographic reach. We must also manage our growth retainwhile maintaining consistent and increase our customer base and to successfully identifyhigh teaching quality, and respond effectively to any emerging trends in our market areas.
We may have difficulty in managing our future growth and any associated increased scale of our operations.We expect to expand through both organic growth and acquisitions. Our future expansion may place a significant strain on our managerial, operational, technical and financial resources. In order to better allocate our resources to manage our growth, we must hire, recruit and manage our workforce effectively and implement adequate internal controls in a timely manner.competitive pressures. If we are unable to effectively managecontinue to attract students to purchase our growthcourse packages and to increase the associated increased scalespending of our operations,students on our business, financial conditionplatform, our gross billings and results of operations could be materially and adversely affected.
Our business requires significant and continuous capital investment.We will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. Our ability to obtain external financing in the future at a reasonable cost is subject to a variety of uncertainties, including:
|
| |
|
| |
|
|
If we require additional funds and cannot obtain them on acceptable terms when required or at a reasonable financing cost or at all, wenet revenues may be unable to fulfill our working capital needs or expand our business. These or other factors may also prevent us from entering into transactions that would otherwise benefit our business or implementing our future strategies. Any of these factorsdecline, which may have a material adverse effect on our business, financial condition and results of operations.
Our bank loans present a significant risk. To date, we have significantly relied upon debt financings to fund our operations. At August 31, 2013 (audited) and August 31, 2014 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,286,785 and $4,126,739, respectively. We also had bank overdrafts of $253,738 as of August 31, 2014. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the year ended August 31, 2014 was $78,660 and for year ended August 31, 2013 was $127,101. Such loans are primarily term loans with maturity dates ranging from November 2014 to October 2037. Approximately $2 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2014, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. This presents a significant risk to the Company in that the Company may not have the necessary cash to meet such payment obligations, or if it does, such payments may draw significantly on the Company’s cash position. Any of such events will likely have a materially detrimental effect on the Company.
If we are unable to attractconduct sales and marketing activities cost-effectively, our results of operations and financial condition may be materially and adversely affected.
We have incurred significant sales and marketing expenses. Our sales expenses include telemarketing sales and free trial lesson related expenses, and our marketing expenses include online and offline marketing and seminar expenses.
Our sales activities may not be well received by students and may not result in the levels of sales that we anticipate, and our trial lessons may not be attractive to our prospective students. Furthermore, we may not be able to achieve the operational efficiency necessary to increase the gross billings per sales and marketing staff. We also may not be able to retain or recruit experienced sales staff, or to efficiently train junior sales staff. Further, marketing and branding approaches and tools in the online education market are evolving, especially for mobile platforms. This further requires us to enhance our marketing and branding approaches and experiment with new methods to keep pace with industry developments and student preferences. Failure to refine our existing marketing and branding approaches or to introduce new marketing and branding approaches in a cost-effective manner may reduce our market share, cause our revenues to decline and negatively impact our profitability.
12
If we are not able to continue to engage, train and retain senior managementqualified teachers, we may not be able to maintain consistent teaching quality on our platform, and personnel, our operations,business, financial conditionconditions and prospects couldoperating results may be materially and adversely affected.
Our future success depends in part onteachers are critical to the contributionslearning experience of our management team and key personnelstudents and our abilityreputation. We seek to engage highly qualified teachers with strong English and teaching skills. We must provide competitive pay and other benefits, such as nice company culture and clear career path to attract and retain qualifiedthem. We must also provide ongoing training to our teachers to ensure that they stay abreast of changes in course materials, student demands and other changes and trends necessary to teach effectively. Furthermore, as we continue to develop new personnel. In particular, our success depends on the continuing services of Li Lai Ying, Tso Yin Yee, Pang Yiu Kwongcourse contents and Tong Wing Shan. There is significant competition in our industry for qualified managerial, key personnel andlesson formats, we may need to engage additional teachers with appropriate skill sets or backgrounds to deliver instructions effectively. We cannot assure youguarantee that we will be able to retaineffectively engage and train such teachers quickly, or at all. Further, given other potential more attractive opportunities for our key senior managerial and other personnelquality teachers, over time some of them may choose to leave our platform. We have not experienced major difficulties in engaging, training or thatretaining qualified teachers in the past, however, we willmay not always be able to attract, integrateengage, train and retain other such personnel that we may require in the future. If we are unableenough qualified teachers to attract and retain key personnel in the future, our business, operations, financial condition, results of operations and prospects could be materially adversely affected.
Our operating costs may increase.Costs in Hong Kong are generally expected to increase. If our labor costs or other operating costs increase and we cannot increase our services efficiency to offset any such increase or pass any such increase on to our customers, our business, financial condition and results of operations may be materially and adversely affected.
The industry in which we operate is highly competitive.Competition in the general field of business consulting is quite intense in Hong Kong. Although numerous established companies offer a variety of services to different customer segments, we consider competition in our focus market niche of small and medium business to be modest. Customers in this segment strongly rely on the consultant’s professional qualifications and the ability to come up with viable solutions in a timely and cost effective manner. Although we believe that we have unique strengths comparedkeep pace with our competitors, our industry is highly competitive and our continued success depends upon our ability to compete effectively in markets that contain numerous competitors across the country, some of which have significantly greater financial, marketing and other resources than we have. New or existing competition that uses a business model that is different from our business model may put pressure on us to change so that we can remain competitive.
We may be subject to disputes with employees or other third parties.The businesses we operate involve dealings with both permanent and temporary employees as well as numerous third parties and customers, and we may be subject to claims or litigation involving such employees or third parties from time to time such as labor disputes and claims under business contracts with customers and others.growth while maintaining consistent education quality. We may also be subject to labor disputes, labor shortagesface significant competition in engaging qualified teachers from our competitors or from other impositions on our business operations, if weopportunities that are unable to amicably resolve disputes with any such parties. We cannot assure you that any such disputes will not ariseperceived as more desirable. A shortage of qualified teachers, a decrease in the future and thatquality of our teachers’ performance, whether actual or perceived, or a significant increase in the occurrence of onecost to engage or multiple disputes will notretain qualified teachers would have a material adverse effect on our business and financial condition.conditions and results of operations.
The Chinese government could attempt to farther extend its reach to include our Company.
If the Chinese government attempts to further extend its reach of authority. If it does so to the degree that it covers the Company because of our past operations in China, it could materially harm the value of our common stock or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
If we fail to successfully execute our growth strategies, our business and prospects may be materially and adversely affected.
Our growth strategies include grow our student base and increase student enrollments, increasing our market penetration amongst K-12 students, expanding our course offerings, enhancing our teaching methods, improving the learning experience of our students, and advancing our technology. We may not succeed in executing these growth strategies due to a number of factors, including the following:
● | we may not be able to replicate the success and growth of our business model from existing cities to other cities |
● | we may fail to further promote our platforms; |
● | we may not be successful in effectively delivering and promoting our small class lessons |
● | we may fail to effectively promote our solutions to business customers |
● | we may not be able to engage, train and retain a sufficient number of qualified teachers and other key personnel; |
● | we may not be able to continue to improve our personalized learning experience of our students and to enhance our existing courses or develop new courses, especially for young students, that meet the changing demands for English learners; |
● | we may fail to maintain the technology necessary to deliver a smooth learning experience to our students; and |
● | we may not be able to identify suitable targets for acquisitions and partnership. |
Our insurance coverageIf we fail to successfully execute our growth strategies, we may not be able to maintain our growth rate and our business and prospects may be insufficientmaterially and adversely affected as a result.
13
If we fail to coverdevelop and introduce new courses that meet our existing and prospective students’ expectations, or adopt new technologies important to our business, risks.our competitive position and ability to generate revenues may be materially and adversely affected.
Historically, our core business centered on one-on-one English courses. We face varioushave since expanded our course offerings to small class lessons, and test preparation targeting a wide range of student demographics. We intend to continue developing new courses. The timing of the introduction of new courses is subject to risks and uncertainties. Unexpected technical, operational, or other problems could delay or prevent the introduction of one or more new courses. Moreover, we cannot assure you that any of these courses or programs will match the quality or popularity of those developed by our competitors, achieve widespread market acceptance or contribute the desired level of income.
Technology standards in internet and value-added telecommunications services and products in general, and in online education in particular, may change over time. If we fail to anticipate and adapt to technological changes, our market share and our business development could suffer, which in turn could have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks related to new courses, our reputation and business may be materially and adversely affected.
We use the streaming technology and infrastructure of a third-party to deliver all the lessons to our students and to conduct teacher training. Any interruption to or discontinuation of our cooperative relationship with this company may severely and negatively impact our ability to deliver our course content to students.
We use the technology of EEO EDUCATION TECHNOLOGY CO. LTD. (EEO), to deliver audio and video data, and their technology is important to our ongoing ability to operate our online and mobile education platforms. Loss of their services could keep us from operating.
Some students may decide not to continue taking our courses for a number of reasons, including a perceived lack of improvement in connectiontheir English proficiency or general dissatisfaction with our business. However,programs, which may adversely affect our business, financial condition, results of operations and reputation.
The success of our business depends in large part on our ability to retain our students by delivering a satisfactory learning experience and improving their English proficiency. If students feel that we are not insuredproviding them the experience they are seeking, they may choose not to renew their existing packages. For example, our education programs may fail to significantly improve a student’s English proficiency. There are no standard assessments or tests to measure the effectiveness of our lessons or teaching methods, and our ability to improve the English proficiency of our students is largely dependent upon the interests, efforts and time commitment of each student. For K-12 students, parent satisfaction with our programs is also a key factor. Their satisfaction may decline for a number of reasons, many of which may not reflect the effectiveness of our lessons and teaching methods. A student’s learning experience may also suffer if his or her relationship with our teachers and teaching assistants does not meet expectations. We have observed an increase in forfeiture rate historically, which may negatively impact the perceived effectiveness of our curriculum and the level of student engagement on our platform. If a significant number of students fail to significantly improve their English proficiency after taking our lessons or if their learning experiences with us are unsatisfactory, they may not purchase additional lessons from us or refer other students to us and our business, financial condition, results of operations and reputation would be adversely affected.
We may encounter disputes from time to time relating to our use of intellectual property of third parties.
We cannot be certain that third parties will not claim that our business infringes upon or otherwise violates patents, copyrights or other intellectual property rights that they hold. We cannot assure you that third parties will not claim that our courses and marketing materials, online courses, products, and platform or other intellectual property developed or used by us infringe upon valid copyrights or other intellectual property rights that they hold. We may be subject to claims by educational institutions and organizations, content providers and publishers, competitors and others on the grounds of intellectual property rights infringement, defamation, negligence or other legal theories based on the content of the materials that we or our teachers distribute or use in our business operation. These types of claims have been brought, sometimes successfully, against certain risks. print publications and educational institutions in the past. We may encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in those disputes.
14
Any lossesclaims against us, with or without merit, could be time consuming and liabilitiescostly to defend or litigate, divert our management’s attention and resources, or result in the loss of goodwill associated with our brand. If a lawsuit against us is successful, we may be required to pay substantial damages and/or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. We may also lose, or be limited in, the rights to offer some of our programs, parts of our platform and products or be required to make changes to our course materials or websites. As a result, the scope of our course materials could be reduced, which could adversely affect the effectiveness of our curriculum, limit our ability to attract new students, harm our reputation and have a material adverse effect on our results of operations and financial position.
Failure to protect confidential information of our teachers and students against security breaches could damage our reputation and brand and substantially harm our business and results of operations.
A significant challenge to the online education industry is the secure storage of confidential information and its secure transmission over public networks. Other than purchases made by our corporate partners, all purchases of our course packages are made through our website and our mobile apps. In addition, online payments for our course packages are settled through third-party online payment services. Maintaining complete security for the storage and transmission of confidential information on our technology platform, such as student names, personal information and billing addresses, is essential to maintaining student confidence.
We have adopted security policies and measures to protect our proprietary data and student information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold as a result of our students’ visits to our website and use of our mobile apps. Such individuals or entities obtaining our students’ confidential or private information may further engage in various other illegal activities using such information. Any negative publicity on our website’s or mobile apps’ safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition and results of operations.
Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet and mobile platforms have recently come under increased public scrutiny. Increased regulation by the PRC government of data privacy on the internet is likely and we may become subject to new laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information that could affect how we store and process the data of our teachers and students. We generally comply with industry standards and are subject to the terms of our own privacy policies. Compliance with any additional laws could be expensive, and may place restrictions on the conduct of our business and the manner in which we interact with our students. Any failure to comply with applicable regulations could also result in regulatory enforcement actions against us.
Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by such breaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other student data, could cause our students to lose trust in us and could expose us to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe or vulnerable to attacks could inhibit the growth of online education services generally, which may negatively impact our business prospects.
Our employees may engage in misconduct or other improper activities or misuse our platform, which could harm our reputation.
We are exposed to the risk of employee fraud or other misconduct. Employee misconduct could include intentionally failing to comply government regulations, engaging in unauthorized activities and misrepresentation to our potential students during marketing activities, which could harm our reputation. Employee misconduct could also involve improper use of our students’ and teachers’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation. Employee misconduct could also involve making payments to government officials or third parties that would expose us to being in violation of laws. It is not insuredalways possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our insurance coverage is inadequatebusiness, financial condition and results of operations.
15
We are subject to cover the entire liabilitycertain regional political and economic risks that may have a material adverse effect on our business, financial condition and results of operations. In
We engage teachers and operate offices mostly in North America, with some in the event that we incur substantial losses or liabilities and our insurance does not cover such losses or liabilities adequately or at all,Philippines. Accordingly, our business, financial condition and results of operations and financial condition may be materially and adversely affected.
We have extendedaffected by significant loanspolitical, social and economic developments in North America and the Philippines or changes in the past that did not generate income or have fixed repayment termslaws and which may have affected our ability to do business. During fiscal 2012 and 2013, we made significant advances of cash to one of our principal shareholders who is also the Company’s current Chief Financial Officer and daughter of our Chief Executive Officer and Chairman. Although all of such advances have been repaid to the Company, such advances may have detrimentally affected our ability to do business insofar that such advances represented a major portion of the Company’s then available cash. The advances to the related party were unsecured, non-interest bearing without fixed repayment terms. Although such advances are no longer being made to such related party, such advances did not generate income to the Company and may have detrimentally affected our ability to grow the business for the benefit of all of the shareholders.
We may be subject to a concentration of credit risk. During the year ended August 31, 2014, we had one customer which accounted for 15% of our total revenues and 35% of our total accounts receivable. No customer accounted for more than 10% total revenue during the year ended August 31, 2013. Although we believe our credit risk is somewhat limited due to a large customer base, there can be no assurance that we will not have a concentration of credit risk in fiscal 2015 and in future years similar to or greater than fiscal 2014.regulations. In such event, the loss of any such key customer or customers could significantly reduce our revenues, or detrimentally impact our revenues if any such key customer or customers experience financial difficulties.
Risks Related to Doing Business in Hong Kong
Substantially all of our revenues to date are derived fromparticular, our operations in Hong Kong. Accordingly,and our business, financial condition,operating results of operations and prospects are subject, to a significant extent, to risks of doing business in Hong Kong.
The Hong Kong legal system embodies uncertainties which could limit the legal protections available to you and us. The Hong Kong legal system is a civil law system based on written statutes. The overall effect of legislation over the past approximately 25 years has significantly enhanced the protections afforded to various forms of foreign investment in Hong Kong. However, these laws, regulations and legal requirements change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since Hong Kong administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. For example, these uncertainties may impede our ability to enforce the contracts we have entered into. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operation. In addition, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.
If tax benefits currently available to us in Hong Kong were no longer available, our effective income tax rates for our Hong Kong operations could increase. To date, all our net income has been generated from our Hong Kong operations. Our net income could be adversely affected by any change in the current tax laws in Hong Kong.by:
● | changes in policies of the government or changes in laws and regulations, or in the interpretation or enforcement of these laws and regulations; |
● | measures that may be introduced to control inflation, such as interest rate increases or bank account withdrawal controls; and |
● | changes in the tax laws and regulations. |
Foreign Exchange Risk.While our reporting currency isIn addition, the US Dollar, our revenues, costsPhilippines has and expenses are denominated in HKD. All of our assets are denominated in HKD. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US Dollars and HKD. If the HKD depreciates against the US Dollar, the value of our HKD revenues, earnings and assets as expressed in our US Dollar financial statements will decline. To date, we have not entered into any foreign exchange forward contracts or similar instruments to attempt to mitigate our exposure to change in foreign currency rates.
Future inflation in Hong Kong may inhibit our ability to conduct business profitably. In recent years, the Hong Kong economy has experienced periods of rapid expansion and high rates of inflation. High inflation may in the future causeexperience political instability, including strikes, demonstrations, protests, marches, or other types of civil disorder. These instabilities and any adverse changes in the Hong Kong governmentpolitical environment in the Philippines could increase our costs, increase our exposure to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in Hong Kong, and thereby harm the market for our services.
It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in Hong Kong. Substantially all of our assets will be located in Hong Kong and our officers and our present directors reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws.
We may have difficulty establishing adequate management, legal and financial controlsbusiness risks, disrupt our office operations in Hong Kong, which could impair our planning processes and make it difficult to provide accurate reports of our operating results. Although we will be required to implement internal controls, we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in Hong Kong in these areas. As a result of these factors, we may experience difficulty in establishing the required controls, making it difficult for management to forecast its needs and to present the results of our operations accurately at all times. If we are unable to establish the required controls, market makers may be reluctant to make a market in our stock and investors may be reluctant to purchase our stock, which would make it difficult for you to sell any shares of common stock that you may ownPhilippines or acquire.
Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continueengage teachers. We engage our teachers in business. the Philippines as independent contractors, whose rights are different from those of employees. Under Philippine labor laws, the level and extent of control exercised by the hiring entity would determine the employment status. Our labor costs will increase if we engage our teachers in the Philippines as full-time employees or if courts or relevant authorities in the Philippines determine that our teachers are deemed employees.
16
Risks Related to Our Stockholders and Purchasing Shares of Common Stock
Your percentage of ownership may become diluted if we issue new Common Stock or other securities, including shares that are eligible for exchange.Banks
Our board of directors is authorized, without your approval, to cause us to issue additional Common Stock to raise capital through the issuance of Common Stock (including equity or debt securities convertible into Common Stock), and other financial institutionsrights, on terms and for consideration as our board of directors in Hong Kong do not provide insurance for funds held on deposit. As aits sole discretion may determine. Any such issuance could result in dilution of the eventequity of our shareholders. We also have 1,207,885,627 as of August 31, 2022 shares that are still exchangeable from Quality Online Education Group Inc, an Ontario company, and our subsidiary, which could cause us to issue 1,207,885,627 new shares of QOEG common stock, which would further dilute our current shareholders and any investors in this Offering
We have not voluntarily implemented various corporate governance measures.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight and the adoption of a bank failure, we mayCode of Ethics. Our Board of Directors expects to adopt a Code of Ethics at its next Board meeting. The Company has not have access to fundsadopted exchange-mandated corporate governance measures and, since our securities are not listed on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, ifnational securities exchange, we are not ablerequired to access fundsdo so. It is possible that if we were to payadopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our employeessenior officers and other creditors, werecommendations for director nominees may be unable to continuemade by a majority of directors who have an interest in business.the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
Risks Relating to Our Common Stock and Our Status as a Public Company
We will incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance requirements, including establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are unablerelating to comply with these requirements. As a public company we will incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controlscontrol over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as requiredreporting.
As directed by Section 404 of the Sarbanes-Oxley Act. Compliance with SectionAct of 2002 (“SOX 404”), the SEC has adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in its annual reports. While we expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404, may requirethere is a risk that we incur substantial accounting expenses and expend significant management efforts.will not comply with all of the requirements imposed thereby. At present, there is no precedent available with which to measure compliance adequately. In the event we identify significant deficiencies or material weaknesses in our internal controlscontrol over financial reporting that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others may lose confidence in the reliability of our financial statements and weour ability to obtain equity or debt financing could suffer.
We have many authorized but unissued shares of our common stock.
We have a large number of authorized but unissued shares of common stock, which our management may issue without further stockholder approval, thereby causing dilution of your holdings of our common stock. Our management will continue to have broad discretion to issue shares of our common stock in a range of transactions, including capital-raising transactions, mergers, acquisitions, and other transactions, without obtaining stockholder approval, unless stockholder approval is required. If our management determines to issue shares of our common stock from the large pool of authorized but unissued shares for any purpose in the future, your ownership position would be diluted without your further ability to vote on that transaction.
17
Shares of our common stock may continue to be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.illiquidity because our shares may continue to be thinly traded and may never become eligible for trading on a national securities exchange.
Currently, none of our employees, including our Chief Financial Officer, who is responsible for preparing and supervising the preparation of our financial statements, have any formal training in U.S. GAAP and SEC rules and regulations. In that regard,While we rely exclusively on our independent accountants and our outside counsel for advice with respect to U.S. GAAP and SEC rules and regulations. Therefore, there is a risk that our current of future financial statements may not be properly prepared in accordance with U.S. GAAP or that our current or future disclosures are not in compliance with SEC rules and regulations.
In addition, because of recent failures of Chinese businesses and losses sustained by public investors, we are likely to encounter a heightened level of scrutiny from regulators, including the Securities and Exchange Commission, diverting our management’s attention and increasing our costs.
Our management is not familiar with the United States securities laws.Our management is generally unfamiliar with the requirements of the United States securities laws, which could adversely impact our ability to comply with legal, regulatory, and reporting requirements of those laws. Our management may notat some point be able to implement programs and policies in an effective and timely manner to adequately respond to such legal, regulatory and reportingmeet the requirements including the establishment and maintenance of internal control over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Exchange Act, which are necessary to maintain public company status, and could result in investigations by the Securities and Exchange Commission, and other regulatory authorities that could be costly, divert management’s attention and disrupt our business, If we were to fail to fulfill those obligations, our ability to operate as a public company would be in jeopardy, in which event you could lose your entire investment in our company.
There is a limited public trading market for our common stock which may have an unfavorable impact on our stock price and liquidity. There has been a limited trading market for our common stock in the past and there canto be no assurance that a trading market in our shares of common stock will further develop and be sustained. There were no reported trades in our common stock during the fiscal years ended August 31, 2012 and 2013. The first reported trade in fiscal 2014 occurred on November 15, 2013. The trading market for securities of companies quoted on the OTCQB or other quotation systems is substantially less liquid than the average trading market for companies listed on a national securities exchange. The quotation of our shares on the OTCQB or other quotation system may result inexchange, we cannot assure you that we will ever achieve a less liquid market available for existing and potential shareholders to trade shareslisting of our common stock could depresson a national securities exchange. Our shares will only be eligible for quotation on the OTC Markets, which is not an exchange. Initial listing on a national securities exchange is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements, and could also be affected by the general skepticism of such markets concerning companies that are the result of mergers with inactive, publicly-held companies. There are also continuing eligibility requirements for companies listed on public trading markets. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and could have a long-term adverse impact on ourmay limit your ability to raise capital in the future.
Since our Certificate of Incorporation authorizes the issuance of two millionsell your shares, of “blank-check” preferred stock, our Board of Directors will have authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stock holders and with the ability to adversely affect stockholder voting power and perpetuate the board's control over our company.Our Certificate of Incorporation authorizes our board of directors to issue up to 2,000,000 shares of preferred stock,any of which none have been issued to date. could result in you losing some or all of your investments.
The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by stockholders. These terms may include preferences as to dividends and liquidation, voting rights, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holdersmarket valuation of our common stock,business may fluctuate due to factors beyond our control and therefore could reduce the value of your investment may fluctuate correspondingly.
The market valuation of emerging growth companies, such common stock. In addition, specific rights grantedas us, frequently fluctuate due to future holdersfactors unrelated to the past or present operating performance of preferred stock could be used to restrict our ability to merge with, or sell assetssuch companies. Our market valuation may fluctuate significantly in response to a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.
We may, in the future, issue additional shares of our common stock, which would reduce investors' percent of ownership and may dilute our share value.Our Certificate of Incorporation was recently amended to increase the number of shares of common stock which we are authorized to issue from 50,000,000 to 200,000,000 shares of common stock, of which 36,704,789 shares are issued and outstanding as of February 10, 2015. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
The price of our common stock may be adversely impacted by developments applicable to other Chinese companies. There has been substantial press regarding certain Chinese companies that have apparently engaged in frauds and deceptive practices resulting in significant losses to investors. Such activities and the resulting negative press has had a negative impact on the prices of the stocks of Chinese companies generally. There is no guarantee that such that such activities will not continue causing investors to avoid buying our stock. Such activities could have a depressive impact on the price of our common stock.
Increased scrutiny of Chinese companies by short-sellers.The fraudulent activities of certain Chinese issuers have encouraged analysts to investigate Chinese companies in an effort to discredit the disclosures in their public filings or otherwise uncover deceptive practices. If such analysts elect to investigate a company they will often short the stock and release materials disparaging the issuer or questioning the accuracy of its public disclosures. Given the current environment for Chinese stocks, if an analyst were to publish a negative article about us, it could cause an immediate and substantial decline in the price of our stock, regardless of the accuracy of the claims in the article.
The market price of our common stock can become volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings. The market price of our common stock can become volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:including:
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
| announcements by us or our competitors of significant contracts, new |
|
| |
|
|
|
| |
vii. |
| additions or departures of key personnel. |
Securities class action litigation is often instituted against companies following periodsAs a result, the value of volatilityyour investment in their stock price. Should this type of litigation be instituted against us it could result in substantial costs to us and divertmay fluctuate.
We have never paid dividends on our management’s attention and resources.common stock.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price ofWe have never paid cash dividends on our common stock and other interests in our Company at a time when you wantdo not presently intend to sell your interest in us.
Recently adopted SEC rules prohibit a reverse acquisition company from listing on a national securities exchange until the company has beenpay any dividends in the U.S. over-the-counterforeseeable future. Investors should not look to dividends as a source of income.
In the interest of reinvesting initial profits back into our business, we do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if at all, from appreciation in the fair market or on another regulated U.S. or foreign exchange for at least one complete fiscal year. Recently adopted SEC rules seek to improve the reliabilityvalue of the reported financial results of reverse acquisition companies by requiring a pre-listing “seasoning period” during which the post-reverse acquisition public company must produce financial and other information in connection with its required SEC filings. The company also must maintain a requisite minimum share price for at least 30 of the most recent 60 trading days prior to the date of the initial listing application and the date of listing on any national securities exchange. By virtue of such rules it is unlikely that we will be eligible to list on a national securities exchange for at least one year following the Acquisition of Almonds Kisses BVI, and only if our stock, trades above the requisite minimum price in accordance with the listing requirementsand not as a result of the applicable national securities exchange.dividend payments.
18
ItemITEM 1B. Unresolved Staff Comments.UNRESOLVED STAFF COMMENTS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.None
ItemITEM 2. Properties.PROPERTIES
As of January 26, 2015, the Company relocated in principal executive offices to 11/F., Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR under an operating lease which will expire in September 2017, with a fixed monthly rent expense of approximately $34,280 USD per month. The Company previously maintained its principal executive offices at Units 2611-13A, 26/F, 113 Argyle Street, Mongkok, Kowloon, Hong Kong, SAR under an operating lease which had been extended to June 2015, with a fixed monthly rent expense of approximately $10,576 USD per month. We also maintain a branch office in Shenzhen, PRCCompany’s headquarters are located at 19A, BuildingUnit 1, China Phoenix Building, Futian District, Shenzhen, PRC, and a branch office in Bangkok, Thailand located at Level 8 Zuellig House Building, No. 1-7, Silom Road, Silom Sub-District, Bangrak District, Bangkok 10500 Thailand.60 Riviera Dr. Markham, Ontario, Canada L3R 5M1. Our phone number is (905) 882-1585. Management believes that the facilities are adequateour current leased property will be sufficient for the Company’sits current needs and for theimmediately foreseeable future.administrative needs.
In addition, Motion Tech Development Limited, a property holding company which has been a 100% owned subsidiary of the Company since August 2013, is the owner of a residential property located Tai Po which is an area in the New Territories of Hong Kong. The property is used as collateral for a banking facility.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings that have occurred within the past five years concerning the Company, our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
19
Item 3. Legal Proceedings.Part II
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded in the over-the-counter market and since July 19, 2013 has been quoted on the OTCQB, officially part of the OTC Market Group’s OTC Link quotation system,Pink Sheets under the symbol “ADGS”. Prior thereto,“QOEG.”
Holders
As of the date of this report there were approximately 178 holders of record of Company common stock. This does not include an indeterminate number of persons who hold our Common Stock in brokerage accounts and otherwise in “street name.”
Stock Authorized
The Company is authorized to issue two classes of stock. It consists of Five Billion (5,000,000,000) shares of Common Stock, $0.0001 par value and Twenty Million (20,000,000) shares of preferred stock, $0.0001 par value (the “Preferred Stock”).
Stock Issued
The Company issued common stock was quoted under the symbol “LIPN”. For the periods indicated,shares to the following table sets forth the high and low sales prices per share of common stock. There were no reported trades in our common stockshareholders for their service provided during the fiscal year ended August 31, 2013.2022
Number | Issuance Date | Shareholder Name | # of Common Shares | |||
1 | September 3, 2021 | Aleth Dimaano de Vela | 75,000 | |||
2 | September 3, 2021 | Wengang XU | 20,258,836 | |||
3 | September 3, 2021 | ChanJuan WANG | 9,600,613 | |||
4 | September 3, 2021 | Shuqing Liu | 10,509,752 | |||
5 | September 3, 2021 | Mingfang Jiang | 10,000,000 | |||
6 | September 3, 2021 | Tianjie LI | 10,000,000 | |||
7 | September 3, 2021 | Lin Zhao | 13,142,542 | |||
8 | February 16,2 022 | Houxiong Su | 714,447 | |||
9 | February 16,2 022 | Qing Feng | 746,177 | |||
10 | February 16,2 022 | Yu Dong | 424,600 | |||
11 | February 16,2 022 | Shan Tian | 1,106,678 | |||
12 | February 16,2 022 | Qiying Zhou | 1,240,913 | |||
13 | February 16,2 022 | Juanjuan Zhang | 37,500 | |||
14 | February 16,2 022 | Fang Yang | 267,823 | |||
15 | February 16,2 022 | Xue Liu | 419,765 | |||
16 | February 16,2 022 | Yan Yu | 290,030 | |||
17 | February 16,2 022 | Chanjuan Wang | 6,260,254 | |||
18 | February 16,2 022 | Wengang Xu | 5,596,549 | |||
19 | February 16,2 022 | Aixia Hu | 1,975,000 | |||
20 | February 16,2 022 | Red Marketing Inc. | 296,521 | |||
21 | February 16,2 022 | Chow Chun Kit | 932,350 | |||
22 | February 16,2 022 | DU XUAN | 1,500,000 |
Number 19: The first reported trade in fiscal 2014 occurredcontrol person for Red Marketing Inc. is Rebecca Liu.
20
Dividends
We have not previously declared or paid any dividends on November 15, 2013. The prices set forth in the table below may not be an accurate indicator of the value of the Company’s shares. These prices represent inter-dealer quotationsour common stock and do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions.
High | Low | |||||||
Year ended August 31, 2013 | ||||||||
|
|
|
|
| ||||
Sept. 1, 2012 to Nov. 30, 2012 | $ | 0.00 | $ | 0.00 | ||||
Dec. 1, 2012 to Feb. 28, 2013 | $ | 0.00 | $ | 0.00 | ||||
March 1, 2013 to May 31, 2013 | $ | 0.00 | $ | 0.00 | ||||
June 1, 2013 to Aug. 31, 2013 | $ | 0.00 | $ | 0.00 |
High | Low | |||||||
Year ending August 31, 2014 | ||||||||
|
|
|
|
| ||||
Sept. 1, 2013 to Nov. 30, 2013 | $ | 0.60 | $ | 0.30 | ||||
Dec. 1, 2013 to Feb. 28, 2014 | $ | 1.80 | $ | 0.60 | ||||
March 1, 2014 to May 31, 2014 | $ | 1.85 | $ | 0.10 | ||||
June 1, 2014 to Aug. 31, 2014 | $ | 3.99 | $ | 1.00 |
Holders
Asanticipate declaring any dividends in the foreseeable future. The payment of February 10, 2015, there were approximately 87 record holders ofdividends on our common stock.
Penny Stock Regulations
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 underwithin the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell anydiscretion of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.board of directors.
ForOptions and Warrants
We do not have any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.outstanding options or warrants.
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
Rule 144
Prior to completion of the Transaction, we were considered a shell company. As a result, we are subject to the provisions of Rule 144(i) which limit reliance on Rule 144 by shareholders owning stock in a shell company. Under current interpretations, unregistered shares issued after we first became a shell company cannot be resold under Rule 144 until the following conditions were met:
|
| ||
|
| ||
|
| ||
|
|
Dividends
We have never paid a dividend on our Common Stock and we currently intend to retain earnings for use in our business to finance operations and growth. Any future determination as to the distribution of cash dividends will depend upon our earnings and financial position at that time and such other factors as the Board of Directors may deem appropriate.
Securities Authorized for Issuance Underunder Equity Compensation Plans
On August 28, 2014, our BoardThe Company has some arrangements for individual compensation with respect to its Common Stock. The issuance of Directors approved and adopted the ADGS Advisory, Inc. 2014 Equity Incentive Plan (the “2014 Plan”), subject to the approval by the stockholders in the extent required under Section 422 or 424 of the U.S. Internal Revenue Code or any other applicable laws, and authorized us to issue up to 7,500,000 shares of our Common Stock underor Preferred Stock is within the 2014 Plan (subject to adjustment to take account of stock dividends, stock splits, recapitalizations and similar corporate events). Holders of shares representing a majority of the voting securities of the Company have given their written consent to the approval of the 2014 Plan. The purpose of the 2014 Plan is to provide officers, other employees and directors of, and consultants and advisors to, us and our subsidiaries an incentive to (a) enter into and remain in our service or that of our subsidiaries, (b) enhance our long term performance and that of our subsidiaries, and (c) acquire a proprietary interest in us. Under the 2014 Plan, we will have the right to issue stock options, restricted stock, restricted stock units and other stock awards.
The Compensation Committee or another committeediscretion of our Board of Directors, (or if therewhich has the power to issue any or all of our authorized but unissued shares without stockholder approval.
Transfer Agent
The transfer agent for our Preferred and Common Stock is no committee, the Board of Directors itself) will administer the 2014 Plan. Subject to the express limitations of the 2014 Plan, the Compensation Committee shall have authority in its discretion to determine the eligible persons to whom, and the time or timesOlde Monmouth Stock Transfer Co., Inc. at which, awards may be granted, the200 Memorial Parkway, Atlantic Highlands, NJ 07716. The transfer agent’s telephone number of shares, units or other rights subject to each award, the exercise, base or purchase price of an award (if any), the time or times at which an award will become vested, exercisable or payable, the performance goals and other conditions affecting an award, the duration of the award, and all other terms of the award.is (732) 872-2727.
To date, no awards have been granted under the 2014 Plan.
Information regarding equity compensations plans is set forth in the table below:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | -0- | -0- | 7,500,000 | |||||||||
|
|
|
| |||||||||
Equity compensation plans not approved by security holders | -0- | -0- | -0- | |||||||||
|
|
|
| |||||||||
Total | -0- | -0- | 7,500,000 |
Recent Sales of Unregistered Securities
None
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We sold the following equity securities during the fiscal years ended August 31, 2013 and 2014 that weredid not registered under the Securities Actpurchase any of 1933, as amended:
On February 7, 2013, and as a condition to the closing of the Acquisition, we issued 750,000our shares of common stock to Wang Yu Long, a designee of Conqueror, pursuant to a subscription agreement dated January 5, 2013 between Conqueror andor other securities during the Company whereby Conqueror agreed to accept 750,000 shares in exchange for funds advanced and other loans made by Conqueror to the Company prior to the date thereof in the amount of $160,038. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation S thereunder. Wang Yu Long is not a “US Person” (as defined in Rule 902 of Regulation S) and the certificate representing the shares issued has been endorsed with a restrictive legend consistent with that exemption.
On April 12, 2013, we issued an aggregate of 20,155,000 shares of our common stock to the eight former shareholders of Almonds Kisses BVI in connection with the Acquisition in exchange for all of the outstanding shares of capital stock of Almonds Kisses BVI. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation S thereunder. None of such former shareholders of Almonds Kisses BVI is a “US Person” (as defined in Rule 902 of Regulation S) and the certificates representing the shares issued to each of them was endorsed with restrictive legends consistent with that exemption.
During March 2014, the Company sold 1,400,000 shares of common stock to 12 investors for the purchase price of $0.30 per share or $420,000 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.
During April 2014, the Company sold 1,791,305 shares of common stock to 10 investors for the purchase price of $0.30 per share or $537,391.50 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.
During June 2014, the Company sold 21,500 shares of common stock to one investors for the purchase price of $0.30 per share or $6,450 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. The investor represented and warranted that he was a non-U.S. person within the meaning of Regulation S.
During August 2014, the Company sold 7,125,000 shares of common stock to 13 investors for the purchase price of $0.35 per share or $2,493,750 in the aggregate. The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons within the meaning of Regulation S.
Of such proceeds with regard to shares sold in fiscal 2014, $3,454,057 has been paid by such investors during fiscal 2014, leaving a subscription receivable due of $3,092,458 as ofyear ended August 31, 2014. Of such amount, $64,515 (approximately HK $500,000) has been received subsequent to August 31, 2014 and prior to the issuance of this report.2022.
ItemITEM 6. Selected Financial Data.[RESERVED]
We are aNot required for 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.companies.
ItemITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of the results of operations and financial condition(“MD&A”) should be read in conjunction with the consolidated financial statements of the Company and notes to those financial statementsQuality Online Education Group Inc. (ticker symbol: QOEG) for the years ended August 31, 20142022 and 2013, 2021.
that areSafe Harbor for Forward-Looking Statements
Certain statements included elsewhere in this Annual Report on Form 10-K. Our discussion includesMD&A constitute forward-looking statements, based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth underidentified by the Risk Factors, Special Note Regarding Forward Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,”expressions anticipate, believe, plan, estimate, expect, intend, and similar expressions to identifythe extent they relate to Quality Online Education Group Inc. (ticker symbol: QOEG) or its management. These forward-looking statements.
All amountsstatements are in U.S. Dollars unless otherwise noted.
Company Overview
Unless the context otherwise requires, the “Company,” “we,” “us,”not facts, promises, or guarantees; rather, they reflect current expectations regarding future results or events. These forward-looking statements are subject to risks and “our” referuncertainties that could cause actual results, activities, performance, or events to the combined business of ADGS Advisory, Inc., formerly known as Life Nutrition Products, Inc., a Delaware corporation,differ materially from current expectations. These include risks related to revenue growth, operating results, industry, products, 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,litigation, as well as ADGS Tax Advisory Limited,the matters discussed in QOEG’s MD&A under Risk Factors. Readers should not place undue reliance on any such forward-looking statements. QOEG disclaims any obligation to publicly update or to revise any such statements to reflect any change in the Company’s expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this report.
21
Liquidity, Capital Resources and Plan of Operations
Going Concern
Our financial statements appearing elsewhere in this offering circular have been prepared on a Hong Kong corporationgoing concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is an 80% owned subsidiary, and Dynamic Golden Limited,contingent upon its ability to raise additional capital as required. For the year ended August 31, 2022, the Company incurred net losses of ($3,790,411). Initially, we intend to finance our operations through equity financings.
Our auditors have indicated that these conditions raise substantial doubt about the Company’s ability to continue as 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 Amendmentgoing concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
There are no external sources of liquidity.
Financings and Securities Offerings
Investing Activities.
Since inception, our principal sources of operating funds have been proceeds from equity financing including the sale of our Common Stock to initial investors known to management and principal shareholders of the Company. We do not expect that our current cash on hand will fund our existing operations. We will need to raise additional capital in order execute our business plan and growth goals for at least the next twelve-month period thereafter. If the Company is unable to raise sufficient additional funds, it will have to execute a slower than planned growth path, reduce overhead and scale back its Certificatebusiness plan until sufficient additional capital is raised to support further operational expansion and growth. There can be no assurance that such a plan will be successful.
Business Strategy
Quality Online Education Group has founded in Aug 2018 in Ontario Canada with a global reach. We provide comprehensive online English lessons to students around the world. English education resource is unbalanced between areas. To address this unmet need, we have developed online and mobile education platforms, customized the content and optimized the marketing method to provide high quality yet affordable products that enable students around the world to take live online English lessons with native English-speaking teachers. We connect our students with highly qualified teachers who have gone through our rigorous selection and training process before they deliver lessons. We hire, train, and manage our tutors from North America and the Philippines.
Our market consists of Incorporation filedstudents from K12 to adults. The lessons we provide are focused on the interaction and application of English.
We have successfully launched a direct selling model through Mommy Influencer in different part of Southeast Asia countries. This business model is cost-effective, saving us significant sales and marketing dollars and build a better cash flow outlook compared to the competitors who only use online advertisement. With the proper expansion of operations, coupled with the Statereplication of Delawareour direct selling model to targeted areas around the world more than 200 cities around the globe, we expect to achieve magnitudes of exponential growth.
Company’s Plan of Operation.
We are launching small group lessons, where one teacher simultaneously teaches 2-4 students online. The one-to-many model has a lower unit price than other competitors, and effectivemay be affordable for more students yet yield a higher margin.
We intend to further develop our sales platform by entering additional cities in Southeast Asia and other countries in need of English teaching resources. Also, we plan to develop and launch new product lines such as of July 19, 2013,the test preparation training for IELTS and non-English types. Our current student base covers Japan, Thailand, France and Germany. We anticipate a more significant profit margin through increasing the student retention rate and launching new product lines, like group lessons.
22
Revenue
During the year ended 31st Aug, 2022, the Company changed its corporate name from “Life Nutrition Products, Inc.”billed our customers over $2.70 million and realized a revenue of $1.67 million compared to “ADGS Advisory, Inc.”.$481,561 for the year ended 2021. The gross margin for the year ended 31st Aug, 2022 was $961,424 or 57.3%, compared to $45,365 or 9.4% for the year ended 31st Aug, 2021. The increased average selling prices and reduced free demo and trial classes for customers primarily drove the increase in gross margin.
We areThe low gross margin for both periods ended 2020 and 2021 was primarily engaged in providing accounting, taxation, company secretarial, general corporate and consultancy services in Hong Kong.due to:
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.
1) | Provided free demo classes and trial classes to students for better market adoption; |
Intentionally lowered our pricing in the competitive market for customer attraction. |
Almonds Kisses BVI was incorporatedWe terminated the only VIE contract in September 2021, and stopped acquiring students from mainland China in December 2021, and ceased offering tutoring services to students in mainland China by the end of April 2022. Our focus is on March 1, 2011 asNorth America, Southeast Asia and Europe markets. We are ambitiously looking for more overseas business partners, and researched and developed our education platform better for customers. As a limited liability companyresult, we do not anticipate that the cessation of services to students in China will negatively impact our revenues in the British Virgin Islands. ADGS Advisory Limited (“ADGS Hong Kong”)future.
Operating expenses
The following is a Hong Kong corporation whichthe breakdown of operating expenses for year ended of 8/31/22 and 8/31/21:
For year ended 8/31/2022 | For year ended 8/31/2021 | |||||||
Operating expenses: | ||||||||
Advertising & Marketing | 67,414 | 59,739 | ||||||
Depreciation | 3,599 | 68,842 | ||||||
Commission | 412,664 | 82,729 | ||||||
Business consulting | 3,962,795 | 30,828 | ||||||
General & Administrative expenses | 119,447 | 355,178 | ||||||
Legal & Professional fees | 93,408 | 134,633 | ||||||
Payroll & Benefits | 92,508 | 1,408,434 | ||||||
Total operating expenses | 4,751,835 | 2,140,383 |
Operating expenses were $4,751,835 for the year ended Aug 31, 2022 compared to $2,140,383 for the year ended Aug 31, 2021. The 122% increase in operating expenses during the year ended Aug 31, 2022 was incorporated on April 28, 2011primarily driven by business consulting expenses.
Advertising and had been wholly owned byMarketing
Advertising and marketing expenses are related to promoting the Company and service to our potential customers. For year ended Aug 31, 2022, the Company incurred an advertising and marketing expense of $67,414 compared to $59,739 for the same groupperiod of shareholders until being acquired by Almonds Kisses BVI pursuantthe prior year. The increase was mainly due to the more usage of services from social media channels and marketing companies.
Depreciation
Depreciation is related to computers, office furniture and equipment. For year ended Aug 31, 2022, the Company incurred a reorganization completed in 2012depreciation expense of $3,599, compared to prepare$68,842 for the Transaction. Vantage Advisory Limited issame period of the prior year. The decrease in depreciation expenses was due to the termination of a Hong Kong corporation which was incorporated on March 6, 2008 which has been wholly owned by Almonds Kisses BVI since January 2013. Motion Tech is a British Virgin Islands company which was incorporated on October 7, 2007 and has been wholly owned by Almonds Kisses BVI since August 2013. Motion Tech is a property holding company which owns a residential property. TH Strategic Management Limited is a Hong Kong corporation which was incorporated on March 16, 2010 which has also been wholly owned by Almonds Kisses BVI since October 2013. ADGS Hong Kong owns 80% of ADGS Tax Advisory Limited (“ADGS Tax”) which is a Hong Kong incorporated holding company. Dynamic Golden Limited which is also a Hong Kong incorporated company, which was 30% owned by ADGS Tax until November 19, 2013 and has since been 30% owned by Almonds Kisses BVI, owns an investment in residential real property located in Tuen Mun, New Territories, Hong Kong.VIE with Tianjin Zhipin Education Technology Co., Ltd.
23
Commission
Commission expenses are related to sales made by our Mommy Influencers and sales teams. For year ended Aug 31, 2022, the Company incurred a commission expense of $412,664, compared to $82,729 for the same period of the prior year. The chart below presents our corporate structureincrease in commission expenses was mainly driven by recruiting more commission-based salespeople.
Business Consulting
Business consulting expenses are related to the professional services provided by contractors. For year ended Aug 31, 2022, the Company incurred a business consulting fee of $3,962,795 compared to $30,828 for the same period of the prior year. The significant increase was primarily due to the expenses related to the service contract with Tianjin Zhipin Education Technology Co., Ltd., which provided online education market research, business and information technology consulting services.
General and Administrative expenses
General and administrative expenses are related to rent, office expenses, utilities, and meals, and entertainment. For year ended Aug 31, 2022, the Company incurred General and Administrative expenses of $119,447, compared to $355,178 for the same period of the prior year. The decrease was primarily due to the termination of the VIE with Tianjin Zhipin Education Technology Co., Ltd.
Legal and Professional fees
Legal and professional fees are related to professional services provided by lawyers and accountants. For year ended Aug 31, 2022, the Company incurred a legal and professional expense of $93,408 as compared to $134,633 for the same period of the prior year. There increase in the prior year was due to the audit fees the Company paid to the previous years.
Payroll& Benefits
For year ended Aug 31, 2022, payroll and benefits were $92,508, compared to $1,408,434 for the prior year. The significant decrease was primarily due to the termination of VIE contract with Tianjin Zhipin Education Technology Co., Ltd.
Contractual Obligations, Commitments and Contingencies
As of the date there are none.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company (as defined in Rule 12b-2 of this report:the Exchange Act), we are not required to provide the information called for by Item 304 of Regulation S-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
24
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED AUGUST 31, 2022
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2022
Table of Contents
| ||||
Audited Consolidated Statement of Balance Sheet | F-3 | |||
Audited Consolidated Statement of Income and Comprehensive Income | F-4 | |||
| ||||
Audited Consolidated Statements of Changes in Stockholders’ equity | F-5 | |||
Audited Consolidated Statements of Cash Flows | F-6 | |||
| ||||
Notes to Audited Consolidated Financial Statements | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| ||||
| ||||
| F-7 - F-9 |
Critical Accounting Policies and EstimatesF-1
While
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Quality Online Education Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Quality Online Education Group, Inc. as of August 31, 2022 and 2021, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our significant accounting policies are more fully described in Note 2 to ouropinion, the financial statements we believepresent fairly, in all material respects, the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.
Basis of presentation
The accompanying consolidated financial statements are audited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures for a fair presentation of these consolidated financial statements have been included. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulationsposition of the SecuritiesCompany as of August 31, 2022 and Exchange Commission2021, and do not include all informationthe results of its operations and footnotes necessaryits cash flows for a complete presentation of financial statementsthe years then ended, in conformity with accounting principles generally accepted in the United States.
The audited condensed consolidated financial statements include all accounts of the Company and its subsidiaries as disclosed in Note 1. All material inter-company balances and transactions have been eliminated.
As both the Company and its subsidiaries, ADGS Hong Kong and ADGS Tax are under common control, the financial statements of the Company have been presented as if the receipt of assets and liabilities of the subsidiaries at their net carrying amount been entered into as of March 1, 2011 in accordance with ASC 805-50-15-6. Accordingly, financial information related to prior periods are the assets and liabilities ofSubstantial Doubt about the Company’s operating subsidiaries.
Certain reclassifications have been made to the comparative period amounts to conform with that of the current period.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the years. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of long-live assets; valuation allowances for receivables, and realizable values for inventories. Accordingly, actual results could differ from those estimates.
Revenue recognition
The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.
(i) Revenue generates from providing accounting, taxation, company secretarial and consultancy services is recognized when persuasive evidence of an arrangement exists, the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured. The Group generates its revenues from providing professional services under fixed-fee billing arrangements.
In fixed-fee billing arrangements, the Company agrees to a pre-established fee in exchange for a pre-determined set of professional services. Generally, the client agrees to pay a fixed-fee in monthly installments over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.
(ii) Consultancy service for slope inspection represents under fixed price contract is recognized when the related services are provided and when the collection is probable, the price is fixed or determinable and collectability is reasonably assured.
(iii) The Company recognizes the management fee income when service is provided. Services include providing administration support service or accounting service to companies.
Intangible assets
The Company assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
|
| |
|
| |
|
| |
|
| |
|
|
The intangible assets are amortized using the straight line method over a period of 10 years.
Goodwill
In accordance with U.S. GAAP, the Company tests goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company reviews goodwill for impairment based on its identified reporting units, which are defined as reportable segments or groupings of businesses one level below the reportable segment level. In September 2011, the FASB issued guidance on testing goodwill for impairment. The guidance provides entities with an option to perform a qualitative assessment to determine whether further quantitative impairment testing is necessary.
In accordance with the guidance, the Company reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances made it more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, such estimates as projected business results, growth rates, the Company’s weighted-average cost of capital, royalty and discount rates.
Income taxes
The Company accounts for income taxes under FASB ASC Topic 740 “Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.
The Company records uncertain tax positions when it is more likely than not that the tax positions will not be sustained upon examination by the respective tax authority.
The Company recognizes interest and penalty related to income tax matters as income tax expense. As of August 31, 2014 and August 31, 2013, there was no penalty or interest recognized as income tax expenses.
Economic and political risks
The major operations of the Company are conducted in Hong Kong, the PRC. Accordingly, the political, economic, and legal environments in Hong Kong, the PRC, as well as the general state of Hong Kong’s economy may influence the business, financial condition, and results of operations of the Company.
Among other risks, the Company's operations are subject to the risks of restrictions on: changing taxation policies; and political conditions and governmental regulations.
Recently issued accounting pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360).” ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The Company is currently evaluating the impact of adopting ASU 2014-12 on the Company's results of operations or financial condition.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15).
The guidanceaccompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in ASU 2014-15 sets forth management's responsibilityNote 2 to evaluate whether there isthe financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about an entity'sthe Company’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparingconcern. Management’s plans in regard to these matters are also described in Note 2. The financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one yeardo not include any adjustments that might result from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoptionoutcome of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.uncertainty.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statementsBasis for Opinion
Trends and Uncertainties
Insofar that our revenues are mainly derived from providing professional services to our clients under fixed-fee billing arrangements, the number of clients we have at any given time and the fees billed are the Company’s key uncertainties. The recent growth in revenues was primarily due to the acquisition of customer lists and client bases in 2011, 2013 and 2014; and, therefore, we cannot be certain that this growth represents a trend which will continue although we have recently made acquisitions and we plan to make additional acquisitions in the upcoming years and we are regularly exploring such opportunities which may benefit our business and increase our revenues. In the future, we expect that we will seek to purchase other customer lists and client bases as part of our overall growth strategy, although there can be no assurance that we will be able to do any of the foregoing on terms which will be acceptable to us.
Other key uncertainties include our high leverage and highly variable interest expense. To date, we have significantly relied upon debt financings to fund our operations. At August 31, 2013 (audited) and August 31, 2014 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,286,785 and $4,126,739, respectively. We also had bank overdrafts of $253,738 as of August 31, 2014. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the year ended August 31, 2014 was $129,738 and for year ended August 31, 2013 was $151,872. Such loans are primarily term loans with maturity dates ranging from November 2014 to October 2037. Approximately $2 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2014, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. See “Risk Factors” elsewhere in this report for further discussion of these uncertainties and others.
Principal Components of Our Income Statement
Revenue
Our revenue is derived from providing professional services to our clients under fixed-fee billing arrangements. The most significant factors that affect our revenue are number of clients and our fees billed. In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a pre-determined set of professional services. Generally, our client agrees to pay a fixed-fee every month over the specified contract term. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term.
Operating expenses
Our operating expenses consist of direct cost of revenue, general and administrative expenses.
Direct cost of revenue
Our direct cost of revenue primarily consists of commission paid, consultant fees, legal and professional fees, management fees, salaries, secretarial fees and sub-contractor fees.
General and administrative expenses
Our general and administrative expenses include advertising and exhibitions, computer fee, depreciation of property and equipment, motor vehicles, rent, rates and building management fee and other miscellaneous expenses related to our administrative activities.
Our operating expenses are positively correlated to our revenue, and with the anticipated expansion of our Company, we anticipate the absolute dollars of the operating expenses will increase accordingly.
Other comprehensive income
Other comprehensive income reflects foreign currency translation adjustment according to our accounting policies.
Year Ended August 31, 2014 compared to Combined Results for the Year Ended August 31, 2013
The following table presents the consolidated statements of operations of the Company for the year ended August 31, 2014 (“Y2014”) as compared to the year ended August 31, 2013 (“Y2013”).
For the year ended August 31, 2014 | For the year ended August 31, 2013 | |||||||
Revenue | $ | 6,158,684 | $ | 3,198,160 | ||||
Less: Operating expenses | ||||||||
Direct cost of revenue | (2,985,443 | ) | (1,425,678 | ) | ||||
General and administrative expenses | (1,337,613 | ) | (842,932 | ) | ||||
Operating profit/(loss) Other income | 1,835,628 18,677 | 929,550 2,494 | ||||||
Other expenses | (135,409 | ) | (154,947 | ) | ||||
Net profit/(loss) | 1,718,896 | 777,097 | ||||||
Income tax expenses | (408,019 | ) | (152,300 | ) | ||||
Other comprehensive income/(loss) | 239 | (10,380 | ) | |||||
Total comprehensive income/(loss) | 1,311,116 | 614,417 | ||||||
Comprehensive income attributable to non-controlling interests | 20,316 | 22,813 | ||||||
Comprehensive income attributable to ADGS Advisory, Inc. | $ | 1,331,432 | $ | 637,230 |
Revenue
Our business for the Y2014 expanded rapidly. We recorded revenues of $6.2 million for Y2014, representing an increase of $2.9 million as compared to the results of $3.2 million for Y2013. The increase was primarily due to the increase of revenue stream multi-disciplinary advisory services and a steady growth in accounting and corporate services.
General and administrative expenses
For the year ended August 31, 2014 | For the year ended August 31, 2013 | % change | ||||||||||
Revenue | $ | 6,158,684 | $ | 3,198,160 | +93 | % | ||||||
Less: Operating expenses | ||||||||||||
Direct cost of revenue | (2,985,443 | ) | (1,425,678 | ) | +109 | % | ||||||
General and administrative expenses | (1,337,613 | ) | (842,932 | ) | +59 | % | ||||||
Operating profit/(loss) | $ | 1,835,628 | $ | 929,550 | +97 | % |
The significant increase in direct cost of revenue is mainly caused by the increase in consultant fees and surveyor fees for the multi-disciplinary advisory services to our clients.
Other expense
Other expense represents the interest expense for the bank loans and overdraft of $129,738 and $151,872 in Y2014 and Y2013 respectively. The decrease in the amount is mainly caused by the decrease in bank overdrafts of $0.25m made to the Company in Y2014.
Other comprehensive income
Other comprehensive income represents the foreign currency translation gain of $239 and foreign currency translation loss of $10,380 in Y2014 and the Y2013 respectively.
Liquidity and Capital Resources
As of August 31, 2014, we had cash on hand of $95,811, which represented a decrease of $68,503 from $164,314 as of August 31, 2013, other current assets of $2,853,264, and other current liabilities of $2,683,273. Working capital was $265,802 and the ratio of current assets to current liabilities was 1.1 to 1 as of August 31, 2014.
As of August 31, 2014 we had long term debt (excluding the deferred revenue of $290,319 in 2014) of $4,223,569, which represented an increase of $1,205,300 from $3,018,269 excluding deferred revenue of $435,343 as of August 31, 2013; total assets of $8,794,562 as of August 31, 2014 representing an increase of $4,028,685 from $4,765,877 as of August 31, 2013. The ratio of long term debts to total assets was 0.5 to 1 as of August 31, 2014.
The following is a summary of cash provided by or used in each of the indicated type of activities during the year ended August 31, 2014 and 2013, respectively:
For the year ended August 31, 2014 | For the year ended August 31, 2013 | |||||||
Cash provided by (used in): | ||||||||
Operating activities | $ | (670,294 | ) | $ | 1,208,913 | |||
Investing activities | (1,914,293 | ) | (2,055,442 | ) | ||||
Financing activities | 2,473,962 | 881,567 | ||||||
Effect of change of exchange rates | 42,122 | 275 | ||||||
Cash, beginning of period | 164,314 | 129,001 | ||||||
Cash, end of period | $ | 95,811 | $ | 164,314 |
Net cash used in operating activities was $670,294 for the year ended August 31, 2014, as compared to net cash provided by operating activities of $1,208,913 for the year ended August 31, 2013. The decrease in fiscal 2014 was mainly due to a net profit of $1,331,194, plus accrued liabilities and other payables of $192,635 and income tax payable of $433,483, offset by accounts receivable of $(896,467), other receivables of $(1,842,599) and prepaid expenses of $(187,462). The increase in fiscal 2013 was mainly due to a net profit of $647,625, deferred revenue of $580,241, accrued liabilities and other payables of $192,075 and income tax payable of $152,300, offset by accounts receivable of $(564,561) and other receivables of $(130,786).
Net cash used in investing activities was $1,914,293 for the year ended August 31, 2014, as compared to net cash used in investing activities of $2,055,442 for the year ended August 31, 2013. Such change in fiscal 2014 was mainly due to advances to third parties of $(841,368), acquisition of an intangible asset and subsidiary totaling $(670,719) and deposit for acquisition of a client list of $(257,928), compared to fiscal 2013 wherein cash used was primarily due to cash paid for property and equipment of $(1,935,864).
Net cash provided by financing activities was $2,473,962 for the year ended August 31, 2014, as compared to net cash provided by financing activities of $881,567 for the year ended August 31, 2013. Such increase in fiscal 2014 was mainly due to proceeds of bank loans of $2,992,990, proceeds from the issuance of stock of $365,133, advances received from a related party of $557,451 and repayment of advances made on behalf of related party of $418,658, offset by repayment of bank loans of $(1,154,689) and net increase in bank overdraft of $(490,316). This compares to fiscal 2013 wherein net cash provided by financing activities was mainly due to repayment of related party advances of $4,655,559, advances received from related party of $750,445, proceeds of bank loans of $1,230,111 and net increase in bank overdraft of $744,077, offset by related party advances of $(4,831,702) and repayment of bank loans of $(1,483,361). The advance to related party of $4,831,702 in fiscal 2013 was fully repaid during fiscal 2014.
Material investment activities
On August 20, 2014, the Company acquired 2% of the issued and outstanding capital stock of Elite Global Group Limited (incorporated in Hong Kong) (“Elite Global”) from one of the then two shareholders of Elite Global for the sum of approximately $2,000,000 (HK $15,000,000) payable by the transfer of certain receivables due to a subsidiary of the Company. Elite Global has entered into a Preliminary Development Agreement with Viacom Media Networks to construct and establish a new entertainment theme park in the PRC. Elite Global is expected to submit a development plan for Viacom’s approval and then obtain a license to operate the theme park. The Company is not aware of the proposed timeframe for completion of the foregoing. In addition, Elite Global is a party to a Joint Venture Agreement with Simson Giftware which operates and manufactures merchandise for theme stores in Taiwan and Hong Kong. Pursuant to the agreement with the seller of the shares, the Company retains the right to request the seller to buy back all or part of the shares purchased at $2,000,000 or such proportionate amount, if any, after August 20, 2015. In view of the potential from this business, the Company acquired such 2% stock interest in Elite Global and is looking for a satisfactory return in the near future.
The Company had bank loans with outstanding principal of $4.1 million as of August 31, 2014 and $2.3 million as of August 31, 2013. Summary of total bank loans is as follows:
Nature of loans |
| Terms of loans | Outstanding loan amount | Current annualized |
| Collateral | |||
Term loan |
| Ranging from 1 year to 25 years | $ | 4,126,739 | Ranging from annual rate from 0.38% to 8.57% |
| Properties and personal guarantee from related parties and third parties | ||
$ | 4,126,739 |
The valuations for the above collaterals on August 31, 2014 were approximately $5.3 million while the total outstanding loan amount was approximately $4 million.
The Company had assets held under capital leases, which represent leases of motor vehicle. The cost of motor vehicle under capital lease was $31,076 at August 31, 2014. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of August 31, 2014 are as follows:
Amount | ||||
Year ending August 31, | ||||
2015 | $ | 11,676 | ||
2016 | 11,676 | |||
Thereafter | 9,730 | |||
Total minimum lease payment | $ | 33,082 | ||
Less: Imputed interest | (1,252 | ) | ||
Present value of net minimum lease payments | $ | 31,830 | ||
Less: Current maturities of capital leases obligations | (10,843 | ) | ||
Long-term capital leases obligations | $ | 20,987 |
Material capital expenditure commitments
We anticipate that we will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. On July 30, 2014, we entered into a Customer List Purchase Agreement (the “July 2014 Purchase Agreement”) with Lau Kam George and Yung Chi Shing (collectively, the “Sellers”) pursuant to which we have agreed to acquire from the Sellers the customer list of the accounting advisory business of the Sellers operating under the name of Acorate Advisory Limited and Berfield Enterprise Solutions and Technology Limited, located in Hong Kong. In consideration for the acquisition of the customer list, we have agreed to pay the Sellers the sum of approximately $1.5 million (HK $12.0 million) and 5,000,000 shares of the common stock of the Company. Such amount is to be paid as follows: (i) approximately $258,000 (HK $2.0 million ) upon signing of the July 2014 Purchase Agreement which amount has been paid, (ii) approximately $387,000 (HK $3.0 million ) on or before March 30, 2015, and (iii) the balance of the purchase price of approximately $903,000 (HK $7.0 million ) in 18 monthly installments commencing one month after closing. The shares of common stock are to be issued at closing. The closing is expected to occur on or before March 30, 2015. Following the closing, the amount of the aggregate purchase price will be adjusted based upon revenues achieved in the 14 months period following the closing. Subsequent to the year ended August 31, 2014, and in January 2015, we paid half of the second installment described above.
Contractual Obligations
The following table sets forth information regarding the Company’s contractual payment obligations excluding the bank overdrafts of $0.25 million as of August 31, 2014.
Payment due by period | ||||||||||||||||||||
Contractual obligations | Total | < 1 year | 1 - 3 years | 3 - 5 years | > 5 years | |||||||||||||||
Borrowing: | ||||||||||||||||||||
-Capital lease | $ | 33,082 | $ | 11,676 | $ | 21,406 | $ | - | $ | - | ||||||||||
-Bank loans | 4,126,739 | 569,425 | 914,413 | 553,142 | 2,089,759 | |||||||||||||||
-Bank Overdraft | 253,738 | 253,738 | - | - | - | |||||||||||||||
-Due to related party | 663,011 | 663,011 | - | - | - | |||||||||||||||
-Loan from a related party | 645,268 | - | 645,268 | - | - | |||||||||||||||
Operating lease obligation: | ||||||||||||||||||||
- Office rental | 1,330,296 | 473,300 | 822,716 | 34,280 | - | |||||||||||||||
- Acquisition of a client base | 1,290,306 | 638,701 | 651,605 | - | - | |||||||||||||||
$ | 8,342,440 | $ | 2,609,851 | $ | 3,055,408 | $ | 587,422 | $ | 2,089,759 |
Off-Balance Sheet Arrangement
There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.
We have not entered into any financial guarantees or commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us.
We may be exposed to interest rate risk in relation to the bank loans we maintain. The interest rate risk is managed by the Directors of the Company on an ongoing basis with the primary objective of limiting the extent to which interest expense could be affected by adverse movement in interest rates. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s post-tax profit for the year ended August 31, 2014 would increase/decrease by $36,577 as compared with the combined post-tax profit for the year ended August 31, 2013.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 8. Financial Statements and Supplementary Data.
See the Financial Statements annexed to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Effective as of June 23, 2014, the Company engaged UHY Vocation HK CPA Limited (“UHY HK”) as its principal independent accountants to audit the financial statements of the Company. UHY HK replaces Union Power HK CPA Limited (“Union Power HK”), which firm resigned as the principal independent accountants of the Company effective as of June 23, 2014. The decision to accept the resignation of Union Power HK and engage UHY HK as the Company’s principal independent accountants was approved by the Company’s Board of Directors.
During the Company’s two most recent fiscal years preceding the dismissal of the former accountants and any subsequent interim period preceding the date hereof, there were no disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountants, would have caused it to make reference to the subject matter of the disagreements in connection with its report.
During the Company’s two most recent fiscal years preceding the dismissal of the former accountants and any subsequent interim period preceding the date hereof, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures.
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2014, these disclosure controls and procedures were not effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no material changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.
Currently, none of our employees, including our Chief Financial Officer, who is responsible for preparing and supervising the preparation of our financial statements, have any formal training in U.S. GAAP and SEC rules and regulations. In that regard, we rely exclusively on our independent accountants and our outside counsel for advice with respect to U.S. GAAP and SEC rules and regulations. Therefore, there is a risk that our current of future financial statements may not be properly prepared in accordance with U.S. GAAP or that our current or future disclosures are not in compliance with SEC rules and regulations.
Based on our evaluation under the frameworks described above and in light of the significant deficiency described above, our management has concluded that our internal control over financial reporting was not effective as of August 31, 2014. Management intends to mitigate the risk of such deficiency going forward by having our Chief Financial Officer and other personnel continue to work with our auditors and other outside advisors to ensure that our control processes and procedures are adequate and effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Set forth below are our present directors and executive officers. Note that there are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers serve at the discretion of the Board of Directors.
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
The following sets forth information about our directors and executive officers:
Li Lai Ying has been our Chairman of the Board,Chief Executive Officer, Secretary and a Director since April 2013. From April 2013 to November 2013, she was also our Chief Financial Officer. She has been Chief Executive Officer of ADGS Hong Kong since April 2011. She will be responsible for the strategic planning, overall operation of the Company and will oversee the financial reporting matters for the Company. Ms. Li has served as a Director of Rodney Engineering Company Limited (“Rodney”) since 1980 which company provides construction auditing and construction management services. Ms. Li holds overall responsibility of Rodney for daily operation and management. She has over 30 years experience in project management and construction auditing. Ms. Li’s leadership experience and knowledge were important qualifications considered in designating her for appointment to the Board. In addition, as the Chief Executive Officer, her presence on the Board will assist the Board in remaining informed regarding the operations of the Company and the progress on business plans.
Tso Yin Yee has been our Chief Operating Officer and a Director since April 2013. She has been Chief Operating Officer and a Director of ADGS Hong Kong since April 2011. She will oversee the daily business operations of the Company. Ms. Tso is a Practicing Certified Public Accountant in Hong Kong since January 2005 and received her bachelor’s degree in accountancy from the Hong Kong Polytechnic University. From May 2006 to March 2011, she was a Director of Honest Joy Accounting Service Co., Ltd. Ms. Tso is an experienced insolvency practitioner being appointed as Joint and Several Provisional Liquidator under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region for the period of 24 months from January 1, 2012 to December 31, 2013. This background and Tso Yin Yee’s experiences as a professional in accountancy and insolvency led to the conclusion that she should serve as a director of the Company.
Tong Wing Shan, Michelle has been our Chief Financial Officer since November 2013 and has been a director of Almonds Kisses BVI, the Company’s wholly owned subsidiary since its inception in March 2011, and a director of ADGS Advisory Limited, a Hong Kong corporation and the Company’s indirect wholly owned subsidiary, since its inception in April 2011. In addition, since 2005, she has been a Manager and Chief Financial Officer of Eugenics Add Centre for Education, an organization located in Hong Kong which provides tutoring services to primary and secondary school students. From 2000 to 2005, she was Finance Manager of Rodney Engineering Company Limited, a Hong Kong corporation which provides engineering services.
Pang Yiu Kwong has been our Director since April 2013. Mr. Pang is a practicing member of Hong Kong Law Society since November 1999 and has been an attorney with Michael Pang & Co. in Hong Kong since April 2004. Mr. Pang is an experienced insolvency practitioner being appointed as Joint and Several Provisional Liquidator under Panel ‘T’ by Official Receiver’s Office under Government of Hong Kong Special Administrative Region for the period of 24 months from January 1, 2012 to December 31, 2013. This background and Pang Yiu Kwong’s experiences as a professional in law and in insolvency work led to the conclusion that he should serve as a director of the Company.
Fu Kei Man Derek has been our Director since March 2014. Mr. Fu has been since June 2011 an Executive Director of Simsen International Corporation Limited, an investment holding company in Hong Kong. Since January 2008, he has worked as a foreign lawyer for Ng and Shum Solicitors & Notaries, located in Hong Kong. Mr. Fu is a practicing lawyer of the People’s Republic of China. Mr. Fu holds a bachelor degree of law from Chongqing University in the People’s Republic of China and a master degree in International Management from University of Reading in the United Kingdom.
Anderson Amanda has been our Director since September 2014. Ms. Anderson attended the N.T. Heung Yee Kuk Yuen Long Secondary School from 2007 to 2012 in Hong Kong and graduated in 2012.
There are no family relationships of any kind among our directors, executive officers, or persons nominated or chosen by us to become directors, except that Tong Wing Shan is the daughter of Li Lai Ying, the Company’s Chairman, Chief Executive Officer and Secretary. Li Lai Ying is also the mother of Tong Wing Yee, who along with Tong Wing Shan are the two largest shareholders of the Company. Both Tong Wing Shan and Tong Wing Yee are directors of the Company’s subsidiaries, Almonds Kisses BVI and ADGS Hong Kong, and Tong Wing Yee is also a director of ADGS Tax and Dynamic Golden Limited.
Involvement in Certain Legal Proceedings
To the knowledge of the Company, none of the directors, executive officers, or persons nominated or chosen by us to become directors has been personally involved in any legal proceedings as defined in Section 401 of Regulation S-K in the past ten years.
Audit Committee Financial Expert
We do not have an audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K, serving on our audit committee because we have no audit committee and are not required to have an audit committee because we are not a listed security.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than ten percent of the Company’s Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company’s review of such forms received by it, or written representations from certain of such persons, the Company believes that, with respect to the year ended August 31, 2014, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with, except that Fu Kei Man Derek filed his initial report of ownership late and filed two reports late relating to two transactions.
Code of Ethics
The Board of Directors has adopted a Code of Ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which is designed to promote honest and ethical conduct; full, fair, accurate, timely and understandable disclosure; and compliance with applicable laws, rules and regulations. A copy of the Code of Ethics will be provided to any person without charge upon written request to the Company at its executive offices, 11/F., Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR.
Insider Transactions Policies and Procedures
We do not currently have an insider transaction policy.
Board Committees
We do not have an audit, compensation, nominating or other committees of the Board of Directors.
Item 11. Executive Compensation.
The following summary compensation table set forth information concerning the annual and long-term compensation paid by the Company to its executive officers for services in all capacities to the Company for the fiscal years ended August 31, 2014 and August 31, 2013.
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total | ||||||||||||||||||||||||||
Li Lai Yang Chief Executive Officer | 2014 2013 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Tso Yin Yee Chief Operating Officer | 2014 2013 | $ $ | 96,401 116,048 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 0 0 | $ $ | 27,388 0 | $ $ | 123,789 116,048 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Tong Wing Shan | 2014 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
Each of Ms. Li Lai Yang, Tso Yin Yee and Tong Wing Shan are employed as executive officers of the Company on an at-will basis, although it is expected that employment agreements may be entered into with each of them in the near term. Li Lai Yang became Chief Executive Officer in April 2013, Tso Yin Yee became Chief Operating Officer in April 2013 and Tong Wing Shan became Chief Financial Officer in November 2013.
Compensation of Directors
We did not pay any cash or other compensation to our directors for services as such for the fiscal years ended August 31, 2014 and August 31, 2013.
It has been agreed that Mr. Fu who serves as a non-executive, independent director will be paid approximately $26,000 (HK$200,000) per annum for his services as such which will be paid in either cash or shares of common stock (to be valued at the market price on the date of grant) as determined by the Company in its sole discretion.
Outstanding Equity Awards at Fiscal Year End
For the fiscal year ended August 31, 2014, no director or executive officer has received compensation from us pursuant to any compensatory or benefit plan.
Indebtedness of Management
See Part III, Item 13 “Certain Relationships and Related Transactions, and Director Independence” for information on shareholder advances with Tong Wing Shan. Other than the foregoing, no member of management was indebted to the Company during its last fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of February 10, 2015, certain information with regard to the record and beneficial ownership of the Company’s Common Stock by (i) each stockholder owning of record or beneficially 5% or more of the Company’s Common Stock, (ii) each director of the Company, (iii) the Company’s Chief Executive Officer and other executive officers, if any, of the Company whose total compensation was in excess of $100,000 (the “named executive officers”), and (iv) all executive officers and directors of the Company as a group. Except as indicated in the footnotes to the table below, the address of each of the beneficial owners named in the table below is in care of our company, 11/F, Rykadan Capital Tower, 135-137 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, SAR. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table to our knowledge have sole voting and investment power with respect to all shares of securities shown as beneficially owned by them. The information in this table is based upon 36,704,789 shares of common stock outstanding as of February 10, 2015. Shares of common stock have one vote per share.
Name of Beneficial Owner | Common Stock Beneficially Owned | Percent |
| |||||
Tong Wing Shan | 9,069,750 | 24.7 | % | |||||
Tong Wing Yee | 5,069,750 | 13.8 | % | |||||
Li Lai Ying | 0 | (2) | 0 | % | ||||
| ||||||||
Tso Yin Yee | 655,037 | 1.8 | % | |||||
Pang Yiu Kwong | 503,875 | 1.4 | % | |||||
Fu Kei Man Derek | 2,000,000 | 5.4 | % | |||||
Anderson Amanda | 0 | 0 | % | |||||
All Directors & Officers as a Group (6 persons) | 12,228,662 | 33.3 | % |
|
|
|
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Except as indicated below, since September 1, 2013, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: (i) in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years; and (ii) in which any director, executive officer, shareholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest.
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
As of August 31, 2011, there was $2,051,460 due to a related party representing amounts which had been previously advanced to the Company by Tong Wing Shan, one of the principal shareholders of the Company and current Chief Financial Officer of the Company. Such amount was paid to Tong Wing Shan in fiscal 2012. In addition, during fiscal 2012, advances were made by the Company to Tong Wing Shan in the amount of $4,539,543 of which $4,300,751 was repaid by Tong Wing Shan by August 31, 2012. As of August 31, 2012, the balance due from Tong Wing Shan was $241,036. At August 31, 2013, the balance due from Tong Wing Shan was $418,658 with $4,831,702 have been advanced during fiscal 2013 and $4,655,559 being repaid. No further advances were made in fiscal 2014 and the balance due at August 31, 2013 was repaid during fiscal 2014. The advances to the related party represented unsecured, non-interesting bearing loans without fixed repayment terms.
On August 30, 2013, Tong Wing Shan made an interest free, unsecured loan to the Company in the principal amount of $645,268 in order to provide the Company with certain funds needed to complete the purchase of the outstanding capital stock of Motion Tech Development Limited. Such loan is payable on August 30, 2017. In addition, as of August 31, 2014, Tong Wing Shan is due from the Company the principal amount of $663,011 for advances made by Tong Wing Shan to the Company which advances are interest free, unsecured and repayable on demand.
In addition, there were significant related party transactions during the year ended August 31, 2014 as follows:
Revenue:- | ||||
Accounting & corporate services | $ | 450,671 | ||
Multi-disciplinary Advisory | 252,326 | |||
$ | 702,997 | |||
Direct cost of revenue:- | ||||
Accounting & corporate services | $ | 41,574 | ||
Corporate restructuring & insolvency | 129,455 | |||
$ | 171,029 |
The balances associated with accounting & corporate services and corporate restructuring & insolvency primarily represent revenue and direct cost of revenue, which were the fees or expense charged by the Company's Chief Operating Officer and related parties as they are license holders of insolvency to execute the liquidation for the year ended August 31, 2014.
Director Independence
Our board of directors currently consists of five members. They are Li Lai Ying, Tso Yin Yee, Pang Yiu Kwong, Fu Kei Man Derek and Anderson Amanda and none of them is an independent director. We have determined that they are not independent directors using the general independence criteria set forth in the Nasdaq Marketplace Rules.
Item 14. Principal Accountant Fees and Services.
The following is a summary of the fees billed to us by the principal accountants (UHY Vocation HK CPA Limited and Union Power HK CPA Limited) to the Company for professional services rendered for the fiscal years ended August 31, 2014 and August 31, 2013:
Fee Category | 2014 Fees | 2013 Fees | ||||||
Audit Fees | $ | 102,274 | $ | 118,627 | ||||
Audit Related Fees | $ | 0 | $ | 7,994 | ||||
Tax Fees | $ | 0 | $ | 0 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
Total Fees | $ | 102,274 | $ | 126,621 |
Audit Fees. Consists of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.
Audit Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.
All Other Fees. Consists of fees for product and services other than the services reported above.
Pre-Approval Policies and Procedures
Prior to engaging its accountants to perform a particular service, the Company’s Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as part of this report:
|
| |
| ||
|
| |
| ||
|
|
|
|
|
|
| ||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
|
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated:
|
|
| ||
|
|
| ||
|
| |||
|
|
| ||
|
| |||
|
|
| ||
| ||||
|
|
| ||
| ||||
|
|
| ||
| ||||
|
|
| ||
|
|
|
|
|
|
|
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF
ADGS ADVISORY, INC.
We have audited the accompanying consolidated balance sheets of ADGS Advisory, Inc. (collectively the “Company”) as of August 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, statement of changes in stockholders’ equity, and cash flows for the years ended August 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
Our audit includesincluded performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. AnOur audit also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidatedpresentation of the financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC (PCAOB ID 5041)
We have served as the Company’s auditor since 2021
Lakewood, CO
November XX, 2022
F-2
In our opinion, the
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED STATEMENT OF BALANCE SHEET
AS OF AUG 31, 2022
AUDITED | AUDITED | |||||||
31-Aug-22 | 31-Aug-21 | |||||||
US$ | US$ | |||||||
Current Assets: | ||||||||
Cash | 179,895 | 104,415 | ||||||
Account receivables | 41,006 | - | ||||||
Other receivables | - | 70,274 | ||||||
Prepayments and other current assets | - | 43,003 | ||||||
Total current assets | 220,901 | 217,692 | ||||||
Long term prepaid expense | - | 31,948 | ||||||
Intangible assets | 759,266 | 1,003,535 | ||||||
Property, plant and equipment, net | 3,593 | 16,717 | ||||||
Total Assets | 983,760 | 1,269,892 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | 182,096 | 12,315 | ||||||
Receipt in advance | 1,400,427 | 950,358 | ||||||
Third party loan payable | 20,194 | 48,969 | ||||||
Assets acquisition payable | 114,408 | 293,802 | ||||||
Due to related party | 140,764 | 130,645 | ||||||
Accrued liabilities and other payable | 16,460 | 162,181 | ||||||
Taxes payable | - | 5,596 | ||||||
Total current liabilities | 1,874,349 | 1,603,866 | ||||||
Long-term loan | ||||||||
Long-term accounts payable | 91,526 | 95,111 | ||||||
Total liabilities | 1,965,875 | 1,698,977 | ||||||
Total Equity: | ||||||||
Share capital | ||||||||
Preferred shares, $ par value Issued and outstanding shares - | 100 | 100 | ||||||
Common shares, $ par value Issued and outstanding shares - | 170,969 | 161,530 | ||||||
Exchangeable shares, $ par value Issued and outstanding shares - | 120,789 | 117,485 | ||||||
Additional paid in capital | 7,622,202 | 5,442,572 | ||||||
Retained Earnings | (8,888,264 | ) | (6,146,744 | ) | ||||
Accumulated other comprehensive loss | (7,911 | ) | (4,028 | ) | ||||
Total stockholders’ equity | (982,115 | ) | (429,085 | ) | ||||
Total liabilities and stockholders’ equity | 983,760 | 1,269,892 |
The accompany notes are an integral part of these consolidated financial statements referred
F-3
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED AUG 31, 2022
AUDITED | AUDITED | |||||||
31-Aug-22 | 31-Aug-21 | |||||||
US$ | US$ | |||||||
Revenues | 1,677,912 | 481,561 | ||||||
Total Revenues | 1,677,912 | 481,561 | ||||||
Cost of Revenue | 716,488 | 436,196 | ||||||
Total Cost of Revenues | 716,488 | 436,196 | ||||||
Gross Profit (Loss) | 961,424 | 45,365 | ||||||
Operating expenses: | ||||||||
Advertising & Marketing | 67,414 | 59,739 | ||||||
Depreciation | 3,599 | 68,842 | ||||||
Commission | 412,664 | 82,729 | ||||||
Business consulting | 3,962,795 | 30,828 | ||||||
Legal & Professional fees | 93,408 | 134,633 | ||||||
General & Administrative expenses | 119,447 | 355,178 | ||||||
Payroll & Benefits | 92,508 | 1,408,434 | ||||||
Total operating expenses | 4,751,835 | 2,140,383 | ||||||
Income from Operations | (3,790,411 | ) | (2,095,018 | ) | ||||
Other income: | ||||||||
Other expenses | - | - | ||||||
Other income, net | - | 1,353 | ||||||
Total other income | - | 1,353 | ||||||
Income before income taxes | (3,790,411 | ) | (2,093,665 | ) | ||||
Provision for income taxes | - | - | ||||||
Net Income (loss) | (3,790,411 | ) | (2,093,665 | ) | ||||
Foreign currency translation adjustment | - | - | ||||||
Comprehensive income | (3,790,411 | ) | (2,093,665 | ) | ||||
Earning/(loss) per share - Basic | 0.00 | 0.00 | ||||||
Earning/(loss) per share - Diluted | 0.00 | 0.00 |
The accompany notes are an integral part of these consolidated financial statements
F-4
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED AUG 31, 2022
Preferred Stock | Exchangeable Shares | Common Stock | Additional | Foreign currency | ||||||||||||||||||||||||||||||||||||
Shares (‘000) | Amount $ | Shares (‘000) | Amount $ | Shares (‘000) | Amount $ | Paid in Capital | Retained Earnings | translation gain | Total | |||||||||||||||||||||||||||||||
Balance at AUG 31, 2020 | 1,000 | 100 | - | - | 39,204 | - | $ | 4,518,826 | $ | (4,053,079 | ) | $ | (221,896 | ) | $ | 243,951 | ||||||||||||||||||||||||
Shares issuance | 1,174,848 | 117,485 | 1,615,304 | 161,530 | 279,015 | |||||||||||||||||||||||||||||||||||
Capital in excess of par value | 923,746 | 923,746 | ||||||||||||||||||||||||||||||||||||||
Net loss for the period | - | (2,093,665 | ) | (2,093,665 | ) | |||||||||||||||||||||||||||||||||||
Foreign currency translation gain | 217,868 | 217,868 | ||||||||||||||||||||||||||||||||||||||
Balance at AUG 31, 2021 | 1,000 | 100 | 1,174,848 | 117,485 | 1,654,508 | 161,530 | $ | 5,442,572 | $ | (6,146,744 | ) | $ | (4,028 | ) | $ | (429,085 | ) | |||||||||||||||||||||||
Effect on VIE termination | 1,048,891 | (98,326 | ) | 950,565 | ||||||||||||||||||||||||||||||||||||
Balance at AUG 31, 2021 | 1,000 | 100 | 1,174,848 | 117,485 | 1,654,508 | 161,530 | $ | 5,442,572 | $ | (5,097,853 | ) | $ | (102,354 | ) | $ | 521,480 | ||||||||||||||||||||||||
Shares issuance | 33,037 | 3,304 | 95,395 | 9,439 | 12,743 | |||||||||||||||||||||||||||||||||||
Capital in excess of par value | 2,179,630 | 2,179,630 | ||||||||||||||||||||||||||||||||||||||
Net loss for the period | - | (3,790,411 | ) | (3,790,411 | ) | |||||||||||||||||||||||||||||||||||
Foreign currency translation gain | 94,443 | 94,443 | ||||||||||||||||||||||||||||||||||||||
Balance at AUG 31, 2022 | 1,000 | 100 | 1,207,885 | 120,789 | 1,749,903 | 170,969 | $ | 7,622,202 | $ | (8,888,264 | ) | $ | (7,911 | ) | $ | (982,115 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
QUALITY ONLINE EDUCATION GROUP INC.
AUDITED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED AUG 31, 2022
AUDITED | AUDITED | |||||||
31-Aug-22 | 31-Aug-21 | |||||||
US$ | US$ | |||||||
Cash flows from operating activities: | ||||||||
Net Loss | (3,790,411 | ) | (2,093,665 | ) | ||||
Net income from continuing operations | ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 3,599 | 22,706 | ||||||
Accounts receivable & other receivable | (41,006 | ) | (41,994 | ) | ||||
Prepayments and other assets | 145,224 | (52,091 | ) | |||||
Accounts payable | 166,194 | (51,700 | ) | |||||
Accrued expenses and other liabilities | (145,721 | ) | 142,590 | |||||
Advanced from customers | 450,070 | 617,089 | ||||||
Tax payable | (5,596 | ) | 4,494 | |||||
Net cash provided by (used in) operating activities | (3,217,647 | ) | (1,452,571 | ) | ||||
Cash flows from investing activities: | ||||||||
Additions to property, plant and equipment | 9,526 | (1,111 | ) | |||||
Additions to intangible assets | 244,270 | 5,980 | ||||||
Net cash provided (used in) investing activities | 253,796 | 4,869 | ||||||
Cash flows from financing activities: | ||||||||
Due to related party | 10,119 | 80,066 | ||||||
Proceeds from third party loan | (208,169 | ) | 7,947 | |||||
Share subscriptions | 2,192,373 | 1,202,761 | ||||||
Net cash provided (used in) financing activities | 1,994,323 | 1,290,774 | ||||||
Effect of exchange rate changes on cash | 94,443 | 217,868 | ||||||
Effect of termination VIE structure | 950,565 | - | ||||||
Net increase in cash | 75,480 | 60,940 | ||||||
Cash, beginning of period | 104,415 | 43,475 | ||||||
Cash, end of period | 179,895 | 104,415 |
The accompany notes are an integral part of these consolidated financial statements
F-6
QUALITY ONLINE EDUCATION GROUP INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 2022
NOTE 1 NATURE OF BUSINESS
Quality Online Education Group Inc. (QOEG) is a leading E-learning company which provides comprehensive online lessons to above present fairly,students in different parts of the world. It locates in Toronto of Canada and has one wholly owned subsidiary company: Golden Bridge Human Resources Consulting Inc., an Ontario, Canada, based company provides tutoring services and courseware development services.
We are the pioneer and leader of providing real-time online small group classes. We deliver quality education to students and noticeable results from our passionate teachers and teaching assistants. With our Artificial Intelligent system, we combined Education and Entertainment (Edu-tertainment) in part of the learning. It is our mission to develop confidence in our students so they can reach their goals with happiness and efficiency! The main business scope of the Group includes K12 English Online education services, courseware development and Education-technology platform development.
NOTE 2 GOING CONCERN
The Company’s ability to continue operating as a “going concern” is dependent on its ability to increase revenues and raise sufficient additional working capital. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company plans to raise additional capital as needed. There can be no assurance that this capital will be available and if is not, the Company may be forced to substantially curtail or cease operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Opinion announced on July 24, 2021 by China’s official state media may lead to policies and regulations that have material impacts on our existing business operations, financial condition, and corporate structure. The Company terminated the VIE contract in September 2021 and entered a new service contract with Tianjin Zhipin Education Technology Co., Ltd as one of the suppliers on global online market research, education consulting and information technology consulting service.
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of QOEG and its subsidiaries and have been prepared in accordance with generally accepted accounting principles (“GAAP”). All material inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Financial Statements in U.S. dollars:
The reporting currency of the Company is the U.S. dollar (“dollar”). The dollar is the functional currency of the Company and the Company’s U.S. subsidiary. The financial statements of the non-US subsidiaries are translated to U.S. dollars using the methods mandated by ASC 830.
Cash and Cash Equivalents:
The Company considers all material respects,highly liquid investments originally purchased with maturities of three months or less to be cash equivalents. These financial statements have not been subjected to an audit or review or compilation engagement, and no assurance is provided on them.
Revenue Recognition:
The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services rendered, the sales price of fee is fixed or determinable, and its collectability is reasonably assured.
F-7
Stock based compensation:
The Company records stock-based compensation in accordance with the ASC 718 “Shares-Based Compensation” FASB Accounting Standards Classification using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Foreign Currency:
The Company translates the financial statements of our foreign subsidiaries from the local (functional) currencies to U.S. dollars. The rates of exchange at each fiscal year end are used for translating the assets and liabilities and the average monthly rates of exchange for each year are used for the consolidated statements of operations and comprehensive loss. Gains or losses resulting from the translation of the foreign subsidiaries’ financial positionstatements are included in the accompany consolidated balance sheets as a separate component of stockholder’s equity.
NOTE 4 OTHER RECEIVABLES
Other receivables consist of the following:
Schedule of other receivables | ||||||||||||||||
As of August 31 | ||||||||||||||||
2021 | 2022 | |||||||||||||||
RMB¥ | CAD$ | RMB¥ | CAD$ | |||||||||||||
Value-Added Tax Input | - | 24,156 | - | - | ||||||||||||
Advance to employees | 75,300 | - | - | - | ||||||||||||
Prepaid rental & other deposits | 222,638 | - | - | - | ||||||||||||
297,938 | 24,156 | - | - |
The change in RMB¥of Other Receivables was due to the termination of VIE contract with Tianjin Zhipin Education Technology Co., Ltd in September 2021.
NOTE 5 INTANGIBLE ASSETS
The company acquired the existing customers and copyright of its teaching and course materials from a third party tutoring business. The company also entered into an endorsement contract with a Canadian celebrity, Christopher Downs, during the years. The intangible assets acquired for the year ended Aug 31, 2021 and Aug 31, 2022 were US$1,003,535 and US$759,266, respectively.
NOTE 6 PROPERTY AND EQUIPMENT
Major classes of property and equipment at August 31, 2021 and 2022 are as follows:
Schedule of property and equipment | ||||||||||||||||
As of August 31 | ||||||||||||||||
2021 | 2022 | |||||||||||||||
RMB¥ | CAD$ | RMB¥ | CAD$ | |||||||||||||
Computers & Equipment | 209,469 | 16,301 | - | 19,316 | ||||||||||||
Furniture & fixtures | 24,159 | 4,575 | - | 4,575 | ||||||||||||
Total | 233,628 | 20,876 | - | 23,891 | ||||||||||||
Less: Accumulated depreciation | 148,509 | 13,791 | - | 18,871 | ||||||||||||
Property & Equipment, net | 85,119 | 7,085 | - | 5,020 |
The change in RMB¥of Other Receivables was due to the termination of VIE contract with Tianjin Zhipin Education Technology Co., Ltd in September 2021.
F-8
NOTE 7 RECEIPT IN ADVANCE
Receipt in advance is amount the company receives from customer before tutoring service is provided to them. The receipt in advance for the year ended Aug 31, 2021 and Aug 31, 2022 were US $950,358 and US $1,400,427, respectively. All receipt in advance are current.
NOTE 8 ASSETS ACQUISITION PAYABLE
The company entered into contracts to acquire the existing customers and copyright of its teaching and course materials with a third party tutoring business. It also entered into an endorsement contract with a Canadian celebrity, Christopher Downs. As of Aug 31, 2021, & Aug 31, 2022, the amount outstanding on the contracts were US$293,802 & US$114,408, respectively.
NOTE 9 DUE TO RELATED PARTY
Due to related party consists of loans from shareholders. In support of the Company’s efforts and cash requirements, it may rely on advances from shareholders until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note. The loans are payable on demand, unsecured and bears no interest. As of Aug 31, 2021, & Aug 31, 2022, the loan from shareholders were US$130,645 and US$140,764, respectively.
NOTE 10 ACCRUED LIABILITIES AND OTHER PAYABLE
Accrued liabilities consist of the salaries that have been earned by employees but not yet paid to them and accounting services provided by third party but not yet pay to them. The amounts for accrued salaries on Aug 31, 2021 and Aug 31, 2022 are US$162,181 & US$16,460. The accrued accounting services fee were nil for both years ended Aug 31, 2021 and Aug 31, 2022, respectively.
NOTE 11 INCOME TAXES
The net operating loss carryovers may be subject to limitation under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefit will not be realized.
NOTE 12 STOCKHOLDERS’ EQUITY COMMON STOCK
After the acquisition and merger on Aug 31,2020, the management had canceled the original common stock of the Company and authorized new share capital. It consists of shares of common stock of which shares were outstanding as of Aug 31, 2020 and were free trading. On October 7, 2020, the Company announced to increase the number of authorized common shares to , up to 3 billion of which will be reserved in order to enact the Merger Agreement. The remainder of the increase will be reserved to fund potential new product line development, market expansion, and any further mergers and acquisitions as such opportunities arise. At the same time, an exchangeable shares structure will be used to finalize the current acquisition of QOEG. Pursuant to the Share Exchange Agreement dated Aug 31, 2020, ADGS Advisory, Inc. and QOEG started to exchange shares. As of August 31, 2022, there were QOEG exchangeable shares that have not been exchanged to QOEG common shares. QOEG has common shares and preferred shares authorized. Among those shares, QOEG common shares and QOEG preferred shares were issued and outstanding.
NOTE 13 COMMITMENTS AND CONTINGENCIES
The Company has entered into a service contract with Tianjin Zhipin Education Technology Co., Ltd as one of the outsourcing vendors on global online market research, education consulting and information technology consulting service in September 2021 for three years. The Company is not aware of any litigation incidental to the conduct of our business as of August 31, 20142022.
F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
We have had no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with our Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and 2013Procedures
Under the supervision and with the participation of our management, including our chief executive, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our chief executive officer and principal financial officer have concluded such controls and procedures to be ineffective as of August 31, 2021, to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15 (f) and 15d- 15 (f) under the Exchange Act, for the Company.
Our internal control over financial reporting is the process designed by and under the supervision of our CEO, or the persons performing similar functions, to provide reasonable assurance regarding the reliability of our financial reporting and the consolidated resultspreparation of its operations and its consolidated cash flowsour financial statements for the years ended August 31, 2014 and 2013,external reporting in conformityaccordance with accounting principles generally accepted in the United States of America. Management has evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting - Guidance for Smaller Public Companies.
Under the supervision and with the participation of our CEO, or the persons performing similar functions, our management has assessed the effectiveness of our internal control over financial reporting as of August 31, 2022, and concluded that it is not effective because of the material weakness described below:
In connection with the preparation of our financial statements for the year ended August 31, 2022, due to resource constraints, material weaknesses became evident to management regarding our lack of resources and segregation of duties. The Company has not established an audit committee and lacks documentation of its internal control process. A material weakness is a significant deficiency in one or more of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level the risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the registrant’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the registrant to provide only management’s report in this annual report.
Evaluation of Changes in Internal Control over Financial Reporting
During the year ended December 31, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We intend to recruit additional professionals, as our business conditions warrant, to ensure that we include all necessary disclosure in our filings with the Securities and Exchange Commission. Although we believe that these corrective steps will enable management to conclude that the internal controls over our financial reporting are effective when the staff is in place and trained, we cannot provide assurance that these steps will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in internal control.
25
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
26
/s/ UHY VOCATION HK CPA LIMITEDPART III
UHY VOCATION HK CPA LIMITEDITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certified Public Accountants
Hong Kong, People RepublicIdentity of ChinaOfficers and Directors
February 10, 2015
Our bylaws provide that the number of directors who shall constitute the whole board shall be such number as the board of directors shall at the time have designated. Each director shall be selected for a term of one year and until his successor is elected and qualified. Vacancies are filled by a majority vote of the remaining directors then in office with the successor elected for the unexpired term and until the successor is elected and qualified.
Executive Officers and Directors
The names of our executive officers and directors, as of August 31, 2022, and the positions currently held by each are as follows:
Name |
Position |
| Term of Office | |||
age 27__ | Chief Executive Officer and Chairman of the Board | One (1) year | ||
age 38__ | Board Member | One (1) year |
August 31, | August 31, | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 95,811 | $ | 164,314 | ||||
Restricted cash | 258,968 | 129,312 | ||||||
Accounts receivable | 1,461,876 | 564,773 | ||||||
Advance to third parties | 841,803 | 130,835 | ||||||
Due from a related party | - | 418,658 | ||||||
Other receivables and prepaid expenses | 290,617 | 64,071 | ||||||
Total current assets | 2,949,075 | 1,471,963 | ||||||
Non-current assets | ||||||||
Property and equipment, net | 1,999,545 | 2,088,690 | ||||||
Equity-method investment | 357,870 | 371,096 | ||||||
Intangible assets | 1,048,160 | 793,840 | ||||||
Other investment | 1,935,459 | - | ||||||
Goodwill | 153,128 | - | ||||||
Deposit paid for acquisition of a client list | 258,061 | - | ||||||
Utility and other deposits | 93,264 | 40,288 | ||||||
Total non-current assets | 5,845,487 | 3,293,914 | ||||||
Total assets | $ | 8,794,562 | $ | 4,765,877 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities | ||||||||
Bank overdraft | $ | 253,738 | $ | 744,077 | ||||
Assets held under capital lease | 10,843 | 23,775 | ||||||
Accrued liabilities and other payables | 411,044 | 218,242 | ||||||
Due to a related party | 663,011 | - | ||||||
Deposit received | 43,942 | - | ||||||
Deferred revenue | 145,159 | 145,114 | ||||||
Income tax payable | 586,111 | 152,357 | ||||||
Bank loans – current portion | 569,425 | 107,548 | ||||||
Total current liabilities | 2,683,273 | 1,391,113 | ||||||
Non-current liabilities | ||||||||
Assets held under capital lease, net of current portion | 20,987 | 88,306 | ||||||
Deferred revenue, net of current portion | 290,319 | 435,343 | ||||||
Bank loans, net of current portion | 3,557,314 | 2,179,237 | ||||||
Loan from a related party | 645,268 | 750,726 | ||||||
Total non-current liabilities | 4,513,888 | 3,453,612 | ||||||
Total liabilities | 7,197,161 | 4,844,725 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 35,337,805 shares issued and outstanding as of August 31, 2014 and 25,000,000 shares issued and outstanding as of August 31, 2013 | 3,534 | 2,500 | ||||||
Subscription receivable | (3,092,458 | ) | - | |||||
Additional paid in capital | 3,454,057 | (2,500 | ) | |||||
Retained earnings | 1,399,062 | 67,868 | ||||||
Accumulated other comprehensive loss | (10,126 | ) | (10,364 | ) | ||||
Total ADGS Advisory, Inc. stockholders’ equity | 1,754,069 | 57,504 | ||||||
Non-controlling interest | (156,668 | ) | (136,352 | ) | ||||
Total equity | 1,597,401 | (78,848 | ) | |||||
Total liabilities and stockholders’ equity | $ | 8,794,562 | $ | 4,765,877 |
Director Independence
We do not have any independent directors serving on our Board of Director.
Executive Officers and Directors
XuYe Wu
XuYe Wu, age 27, has been serving as the CEO and the director of the Company since January 1, 2021. Prior to that, he founded Golden Voice English Online Education in 2015. After receiving multiple rounds of venture capital investment, he left and founded Quality Online Education Group Inc. with a refined understanding of the industry and the market. Mr. Wu attended the University of Toronto from 2013 to 2015, majoring in Economics. Through his prior experiences, Edward possesses good understanding of the education industry, and his experience managing an online education company helps him making critical strategic goals balancing cost and the rate of growth. His working experience qualifies him to serve on our board and bring in valuable insights on running the company.
Xijin Wu
Xijin Wu, Age 38, has been serving as the CEO and the directors of the Company since February 7, 2020 and remains as the director since January 1st, 2021. He is a serial entrepreneur and angel investor and has been focused on education and e-commerce over the past 15 years. Prior to joining QOEG, he was the founder and CEO of Dongyang Aibel Education Group and Ningbo Realfun Education Group. He successfully established several enterprises with a total annual revenue of hundreds of millions. He has participated in more than dozens of angel investment projects, including Mobike, Auro Robotics, Flirtey, Bingz Canada, Instawork,etc.
Board Leadership Structure and Risk Oversight
The Board oversees our business and considers the risks associated with our business strategy and decisions. The Board currently implements its risk oversight function as a whole. Each of the Board committees, when established, will also provide risk oversight in respect of its areas of concentration and reports material risks to the board for further consideration.
27
See notesTerm of Office
Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to consolidated financial statements.serve for one (1) year until the meeting of the Board following the annual meeting of shareholders and until their successors have been elected and qualified.
Director Independence
We use the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
the director is, or at any time during the past three (3) years was, an employee of the company; |
|
|
|
Year ended August 31 | ||||||||
2014 | 2013 | |||||||
Revenue | $ | 6,158,684 | $ | 3,198,160 | ||||
Direct cost of revenue | (2,985,443 | ) | (1,425,678 | ) | ||||
Gross profit | 3,173,241 | 1,772,482 | ||||||
General and administrative expenses | (1,337,613 | ) | (842,932 | ) | ||||
Operating income | 1,835,628 | 929,550 | ||||||
Other income | 18,677 | 2,494 | ||||||
Interest expenses | (135,409 | ) | (154,947 | ) | ||||
Profit before income taxes | 1,718,896 | 777,097 | ||||||
Less: Income tax expense | (408,019 | ) | (152,300 | ) | ||||
Net profit before allocation of non-controlling interest | $ | 1,310,877 | $ | 624,797 | ||||
Net loss attributable to non-controlling interest | 20,317 | 22,828 | ||||||
Net income attributable to common stockholders | $ | 1,331,194 | $ | 647,625 | ||||
Earnings per share | ||||||||
- Basic and diluted | $ | 0.05 | $ | 0.05 | ||||
Weighted average common shares outstanding | ||||||||
- Basic and diluted | 26,342,404 | 12,252,562 |
See notes to consolidated financial statements.
|
|
|
Year ended August 31 | ||||||||
2014 | 2013 | |||||||
Net income | $ | 1,310,877 | $ | 624,797 | ||||
Other comprehensive income/(loss) | ||||||||
Foreign currency translation adjustment | 239 | (10,380 | ) | |||||
Add: Comprehensive loss attributable to non-controlling interests | 20,316 | 22,813 | ||||||
Comprehensive income attributable to ADGS Advisory, Inc. | $ | 1,331,432 | $ | 637,230 |
See notes to consolidated financial statements.
|
|
|
| Preferred shares with US$0.0001 Par Value | Common Stock, with US$0.0001 Par Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Additional paid-in capital Amount |
| Subscription receivable | Accumulated Other Comprehensive (loss)/income | Retained Earnings |
| Non-controlling Interest |
| Total Equity |
| ||||||||||||||||||||||||||
Balance as of August 31, 2012 | - | - | 4,095,000 | $ | 410 | $ | (410 | ) | $ | - | $ | 31 | $ | (579,757 | ) | $ | (113,539 | ) | $ | (693,265 | ) | |||||||||||||||||||
Shares issued to settle notes payable and accrued liabilities as part of recapitalization during April 2013 | - | - | 750,000 | 75 | (75 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
Shares issued to Almond Kisses shareholders | - | - | 20,155,000 | 2,015 | (2,015 | ) | - | - | - | - | - | |||||||||||||||||||||||||||||
Net profit/(loss) | - | - | - | - | - | - | - | 647,625 | (22,828 | ) | 624,797 | |||||||||||||||||||||||||||||
Foreign translation gain/(loss) | - | - | - | - | - | - | (10,395 | ) | - | 15 | (10,380 | ) | ||||||||||||||||||||||||||||
Balance as of August 31, 2013 | - | - | 25,000,000 | $ | 2,500 | $ | (2,500 | ) | $ | - | $ | (10,364 | ) | $ | 67,868 | $ | (136,352 | ) | $ | (78,848 | ) | |||||||||||||||||||
Common stock issued | - | - | 10,337,805 | 1,034 | 3,456,557 | (3,092,458 | ) | - | - | - | 365,133 | |||||||||||||||||||||||||||||
Net profit/(loss) | - | - | - | - | - | - | - | 1,331,194 | (20,317 | ) | 1,310,877 | |||||||||||||||||||||||||||||
Foreign translation gain | - | - | - | - | - | - | 238 | - | 1 | 239 | ||||||||||||||||||||||||||||||
Balance as of August 31, 2014 | - | - | 35,337,805 | $ | 3,534 | $ | 3,454,057 | $ | (3,092,458 | ) | $ | (10,126 | ) | $ | 1,399,062 | $ | (156,668 | ) | $ | 1,597,401 |
See notes to consolidated financial statements.
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US DOLLARS)
For the year ended August 31, | |||||||||
2014 | 2013 | ||||||||
Cash flows from operating activities: | |||||||||
Net income | $ | 1,331,194 | $ | 647,625 | |||||
Add: Net loss attributable to non-controlling interest | (20,317 | ) | (22,828 | ) | |||||
1,310,877 | 624,797 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation of property and equipment | 110,654 | 50,475 | |||||||
Bank overdraft interest expenses | 51,078 | 24,771 | |||||||
Bank loan interest expenses | 78,660 | 127,101 | |||||||
Capital lease interest expenses | 5,284 | 3,075 | |||||||
Amortization of intangible assets | 222,946 | 180,519 | |||||||
Loss on equity-method investment | 10,912 | 10,911 | |||||||
Deferred revenue | (145,085 | ) | 580,241 | ||||||
(Gain)/loss on disposal of fixed assets | (5,599 | ) | 7,504 | ||||||
Bank interest income | (594 | ) | (321 | ) | |||||
Changes in assets and liabilities: | |||||||||
Account receivables | (896,467 | ) | (564,561 | ) | |||||
Other receivables | (1,842,599 | ) | (130,786 | ) | |||||
Utility and other deposits | (52,936 | ) | (3,765 | ) | |||||
Prepaid expenses | (187,462 | ) | (45,423 | ) | |||||
Deposit received | 43,919 | - | |||||||
Accrued liabilities and other payables | 192,635 | 192,075 | |||||||
Income tax payable | 433,483 | 152,300 | |||||||
Net cash (used in)/provided by operating activities | (670,294 | ) | 1,208,913 | ||||||
Cash flows from investing activities: | |||||||||
Cash paid for property and equipment | (85,229 | ) | (1,935,864 | ) | |||||
Sale proceeds of property and equipment | 69,906 | 9,413 | |||||||
Advance to third parties | (841,368 | ) | - | ||||||
Net increase in restricted cash | (129,549 | ) | (129,312 | ) | |||||
Acquisition of an intangible asset | (154,757 | ) | - | ||||||
Acquisition of a subsidiary (See note a) | (515,962 | ) | - | ||||||
Deposit paid for acquisition of a client list | (257,928 | ) | - | ||||||
Bank interest income | 594 | 321 | |||||||
Net cash used in investing activities | (1,914,293 | ) | (2,055,442 | ) | |||||
Cash flows from financing activities: | |||||||||
Proceeds from issue of stock | 365,133 | - | |||||||
Advances made on behalf of a related party | - | (4,831,702 | ) | ||||||
Proceeds from repayment of advances made on behalf of a related party | 418,658 | 4,655,559 | |||||||
Advance received from a related party | 557,451 | 750,445 | |||||||
Proceeds from bank loans | 2,992,990 | 1,230,111 | |||||||
Repayment of bank loans | (1,154,689 | ) | (1,483,361 | ) | |||||
Repayment of capital lease | (80,243 | ) | (28,615 | ) | |||||
Net increase in bank overdraft | (490,316 | ) | 744,077 | ||||||
Bank overdraft interest expenses | (51,078 | ) | (24,771 | ) | |||||
Bank loan interest expenses | (78,660 | ) | (127,101 | ) | |||||
Capital lease interest expenses | (5,284 | ) | (3,075 | ) | |||||
Net cash provided by financing activities | 2,473,962 | 881,567 | |||||||
Net (decrease)/increase in cash | (110,625 | ) | 35,038 | ||||||
Effect on change of exchange rates on cash | 42,122 | 275 | |||||||
Cash as of Beginning of year | 164,314 | 129,001 | |||||||
Cash as of End of year | $ | 95,811 | $ | 164,314 |
ADGS ADVISORY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US DOLLARS)
For the year ended August 31 | |||||||||
Supplemental disclosures of cash flow information | 2014 | 2013 | |||||||
Cash paid during the year for: | |||||||||
Capital lease additions | $ | - | $ | 126,006 | |||||
Bank overdraft interest paid | $ | 51,078 | $ | 24,771 | |||||
Bank loan interest paid | $ | 78,660 | $ | 127,101 | |||||
Capital lease interest paid | $ | 5,284 | $ | 3,075 | |||||
Non-cash transaction during the year: | |||||||||
Repayment made from due from a related party | $ | 105,690 | $ | - | |||||
Repayment made to loan from a related party | $ | (105,690 | ) | $ | - | ||||
Consideration of other investment paid by setting off the other receivables | $ | 1,934,460 | $ | - |
a. Acquisition of a subsidiary
For the year ended 31 August 2014 | ||||
Assets/(liabilities) | ||||
Cash | $ | 16,189 | ||
Account receivables | 89,685 | |||
Accruals and other payables | (17,544 | ) | ||
Tax payables | (25,469 | ) | ||
Due to a related party | (22,504 | ) | ||
Intangible asset | 322,477 | |||
362,834 | ||||
Goodwill | 153,128 | |||
Consideration | $ | 515,962 | ||
Satisfied by: Cash consideration | $ | 515,961 | ||
Issue of ordinary share | 1 | |||
| $ | 515,962 |
See notes to consolidated financial statements.
|
|
|
|
|
● | |
| |
| |
|
● | the director or a family member of |
● | the |
Under such definitions, we have no independent directors. However, our Common Stock is not currently quoted or listed on any national exchange or interdealer quotation system with a requirement that a majority of our Board be independent and, therefore, the Company is not subject to any director independence requirements.
Family Relationships
There are no additional family members serving as Officers and Directors of the Company.
Involvement in Certain Legal Proceedings
During the past five years none of our directors, executive officers, promoters or control persons was:
1) | the subject of |
2) | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
3) | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
4) | found by a court of competent jurisdiction (in a civil action), the |
28
Code of Business Conduct and Ethics
Our Board plans to adopt a written code of business conduct and ethics (“Code”) that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. We intend to post on our website a current copy of the Code and all disclosures that are required by law in regard to any amendments to, or waivers from, any provision of the Code.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this offering circular have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Change in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This offering circular does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
29
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table reflects all compensation awarded to, earned by, or paid to our Chief Executive Officer and directors for all services rendered to us in all capacities during 2020 to 2022.
Summary Compensation Table
Name and Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option | All Other Compensation ($) (g) | Total ($) (h) | |||||||
XuYe Wu, CEO, Director | 2020 | |||||||||||||
| 2021 | |||||||||||||
2022 | CAD $60,000 | CAD $100,000 worth of QOEG Common Shares | CAD $160,000 | |||||||||||
Xijin Wu, Director |
| 2020 | ||||||||||||
2021 | CAD $100,000 worth of | CAD $100,000 | ||||||||||||
2022 | CAD $100,000 worth of QOEG Common Shares | CAD $100,000 |
30 |
|
|
|
|
|
| |
| |
| |
| |
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
The Company also operates branches in Shenzhen, PRC and Bangkok, Thailand. The branches are set up to attract potential clients to establish companies in Hong Kong. A full rangeITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
During the 12 months ended of services could be provided to these clients.
|
|
|
|
|
| |
|
|
|
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
| |
|
|
| |||
|
|
| ||
|
|
|
Revenue recognition
The Company generates revenue primarily from providing accounting, taxation, company secretarial, consultancy services, consultancy service for slope inspection and rental income.
|
| |
| ||
|
| |
|
|
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
| |
| |
| |
| |
| |
| |
|
| ||
|
| |
|
| |
|
| |
|
| |
|
|
Equity-method investment
Affiliated companies, in whichAugust 31, 2022, Kuido Wu, advanced the Company has significant influence, but not control, are accounted for equity-method investment. Equity-method investment adjustments include$26,356. The advance is non-interest bearing and due on demand.
SECURITY OWNERSHIP OF MANAGEMENT & CERTAIN SECURITY HOLDERS
The following table shows the Company’s proportionate sharebeneficial ownership 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 assetsour Common Stock as of the investee at the date of this Offering Circular held by (i) each person known to us to be the beneficial owner of more than five percent (5%) of any class of our shares; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group. As of August 31, 2019, there were 39,079,889 shares of our Common Stock issued and outstanding. As of August 31, 2020 and August 31, 2021, there were 39,079,889 and 1,654,508,319 shares of our Common Stock issued and outstanding respectively. As of August 31, 2022, there were 1,749,903,669 Common Stock outstanding.
We believe that all persons named in the table have sole voting and investment impairments, and other adjustments requiredpower with respect to all shares beneficially owned by them, except as noted.
Percentage ownership in the following table is based on 1,749,903,669 shares of Common Stock outstanding as of August 31, 2022. Each beneficial owner’s percentage ownership is determined by dividing the number of shares beneficially owned by that person by the equity method. Gainbase number of outstanding shares, increased to reflect the shares underlying options, warrants or losses are realized when such investments are sold.other convertible securities included in that person’s holdings, but not those underlying shares held by any other person.
Beneficial Owner | Number of Shares | Percentage | ||||||
XuYe Wu – CEO and Director | 234,134,787 | 13.38 | % | |||||
Xijin Wu – Director | 0 | 0 | % | |||||
Lin Zhao | 88,218,309 | 5.04 | % | |||||
Qiang Tong | 588,713,336 | 33.64 | % | |||||
Yang Song | 117,742,668 | 6.73 | % | |||||
All Directors and Executives (2 person) | 234,134,787 | 13.38 | % |
31
|
|
|
|
|
| |
| |
| |
|
|
| ||
|
| ||
|
| ||
|
| ||
|
|
The intangible assets are amortized using the straight line method over a period of 10 years.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
GoodwillDESCRIPTION OF SECURITIES
In accordance with U.S. GAAP, the Company tests goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company reviews goodwill for impairment based on its identified reporting units, which are defined as reportable segments or groupings of businesses one level below the reportable segment level. In September 2011, the FASB issued guidance on testing goodwill for impairment. The guidance provides entities with an option to perform a qualitative assessment to determine whether further quantitative impairment testing is necessary.
In accordance with the guidance, the Company reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances made it more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, such estimates as projected business results, growth rates, the Company’s weighted-average cost of capital, royalty and discount rates.
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
The Company has four (4) reportable business segments: accounting and corporate services, corporate restructuring and insolvency, multi-disciplinary advisory and corporate and other income. The Company evaluates performance based on net operating profit. Administrative functions are centralized however, where applicable, portions of the administrative function expenses are allocated between the operating segments. In the event any services are provided to one operating segment by the other, the transaction is valued according to the company’s transfer policy, which approximates market price. The administrative expenses are captured discretely within each segment. The Company’s property and equipment, and accounts receivable are captured and reported discretely within each operating segment.
The following tables show the operations of the Company’s reportable segments:
Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
Year ended August 31, 2014 | ||||||||||||||||||||
Segment revenue | ||||||||||||||||||||
Revenue from external Customer | $ | 1,967,267 | $ | 165,327 | $ | 4,026,090 | $ | - | $ | 6,158,684 | ||||||||||
Direct cost of revenue | (840,190 | ) | (354,504 | ) | (1,788,885 | ) | (1,864 | ) | (2,985,443 | ) | ||||||||||
Administrative expense | (427,234 | ) | (35,848 | ) | (874,531 | ) | - | (1,337,613 | ) | |||||||||||
Gross profit/(loss) | 699,843 | (225,025 | ) | 1,362,674 | (1,864 | ) | 1,835,628 | |||||||||||||
Other income | 5,429 | 523 | 12,725 | - | 18,677 | |||||||||||||||
Finance cost | (39,734 | ) | (3,771 | ) | (91,904 | ) | - | (135,409 | ) | |||||||||||
Income/(loss) before income taxes | 665,538 | (228,273 | ) | 1,283,495 | (1,864 | ) | 1,718,896 | |||||||||||||
Income tax | (130,868 | ) | (10,941 | ) | (266,210 | ) | - | (408,019 | ) | |||||||||||
Net income/(loss) | $ | 534,670 | $ | (239,214 | ) | $ | 1,017,285 | $ | (1,864 | ) | $ | 1,310,877 |
Accounting & | Corporate | Multi-Disciplinary | Corporate & | Total | ||||||||||||||||
Total assets | $ | 1,415,135 | $ | 131,968 | $ | 3,263,932 | $ | 3,983,527 | $ | 8,794,562 | ||||||||||
Total liabilities | $ | 1,719,123 | $ | 63,382 | $ | 3,974,039 | $ | 1,440,617 | $ | 7,197,161 |
|
|
|
|
|
Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
Year ended August 31, 2013 | ||||||||||||||||||||
Segment revenue | ||||||||||||||||||||
Revenue from external customer | $ | 1,541,120 | $ | 709,828 | $ | 937,936 | $ | 9,276 | $ | 3,198,160 | ||||||||||
Direct cost of revenue | (675,169 | ) | (378,005 | ) | (372,004 | ) | (500 | ) | (1,425,678 | ) | ||||||||||
Administrative expense | (491,381 | ) | (150,594 | ) | (198,989 | ) | (1,968 | ) | (842,932 | ) | ||||||||||
Gross profit | 374,570 | 181,229 | 366,943 | 6,808 | 929,550 | |||||||||||||||
Other income | 2,494 | - | - | - | 2,494 | |||||||||||||||
Finance cost | (74,359 | ) | (34,522 | ) | (45,615 | ) | (451 | ) | (154,947 | ) | ||||||||||
Income before income taxes | 302,705 | 146,707 | 321,328 | 6,357 | 777,097 | |||||||||||||||
Income tax | (85,500 | ) | (28,615 | ) | (37,811 | ) | (374 | ) | (152,300 | ) | ||||||||||
Net income/(loss) | $ | 217,205 | $ | (118,092 | ) | $ | 283,517 | $ | 5,983 | $ | 624,797 |
Accounting & Corporate Services | Corporate Restructuring & Insolvency | Multi-Disciplinary Advisory | Corporate & Other Income | Total | ||||||||||||||||
Total assets | $ | 2,086,481 | $ | 968,673 | $ | 26,257 | $ | 1,684,466 | $ | 4,765,877 | ||||||||||
Total liabilities | $ | 1,653,593 | $ | 767,700 | $ | 934,302 | $ | 1,489,130 | $ | 4,844,725 |
|
|
|
|
|
| |
|
Assets/ (liabilities) | ||||
Cash | $ | 16,189 | ||
Account receivables | 89,685 | |||
Accruals and other payables | (17,544 | ) | ||
Tax payables | (25,469 | ) | ||
Due to a related party | (22,504 | ) | ||
Intangible asset | 322,477 | |||
Goodwill | 153,128 | |||
Consideration | $ | 515,962 |
As the purchase price exceeds the fair value of assets and liabilities acquired or assumed, goodwill will be recognized. Goodwill is calculated as the difference between the Acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist. No acquisition related costs incurred in this acquisition.
The following is a summary of revenues, expensesthe rights of our capital stock as provided in our certificate of incorporation, bylaws and net incomecertificate of T H Strategic sincedesignation. For more detailed information, please see our certificate of incorporation, bylaws and certificate of designation which have been filed as exhibits to the effective acquisitionOffering Statement of which this Offering Circular is a part.
General
The Company is authorized to issue multiple classes of stock. The total number of shares of stock which the Company is authorized to issue is five billion twenty million (5,020,000,000) shares of capital stock, consisting of five billion (5,000,000,000) shares of Common Stock, $0.0001 par value, and twenty million (20,000,000) shares of preferred stock, $0.0001 par value (the “Preferred Stock”).
Indebtedness.
As of the date (October 20, 2013)of this Offering Circular, except for approximately $1,965,875 in payable and debt obligations owed by the Company.
Common Stock
As of the date of this Offering Circular, the Company had 1,749,903,669 shares of Common Stock issued and outstanding.
Voting
The holders of the Common Stock are entitled to one vote for each share held at all meetings of shareholders (and written actions in lieu of meeting). There shall be no cumulative voting. Preferred stockholders have rights to dividends when and as declared by the Board from funds legally available therefore, and upon liquidation are entitled to share pro rata in any distribution to holders of Preferred. There are no preemptive, conversion or redemption privileges, nor sinking fund provisions with respect to the Common Stock. There are conversion and redemption privileges, for Preferred stock, and may convert each 1 Preferred share to 1,000 Common shares.
Changes in Authorized Number
The number of authorized shares of Common Stock may be increased or decreased subject to the Company’s legal commitments at any time and from time to time to issue them, by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote.
Preferred Stock
The Preferred Stock may be issued from time to time in one or more series. The Board is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board is also authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred A Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series than outstanding) the number of shares of any such series subsequent to the issue of shares of that series.
Dividend Policy
We will not distribute cash to our Common Stock shareholders. We currently intend to retain future earnings, if any, to finance the expansion of our business and for general corporate purposes. We cannot assure you that we will distribute any cash in the future. Our cash distribution policy is within the discretion of our Board of Directors and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities.
Equity Compensation Plan Information
Company plans to establish a Common Stock Option Plan for the benefit of its employees in the near future. The vesting and terms of all of the options are determined by the Board of Directors and may vary by optionee; however, the term may be no longer than 10 years from the date of grant.
32
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The following table presents the aggregate fees billed for each of the last two fiscal years by Ben Borgers, our Independent Registered Public Accounting Firm, in connection with the audit of our financial statements and other professional services rendered by those accounting firms.
2021 | 2022 | |||||||
Audit fees | USD $ | 59,400 | USD $ | 48,700 | ||||
Audit-related fees | - | $ | - | |||||
Tax fees | - | $ | - | |||||
All other fees |
Audit fees represent fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and related services by the accounting firm that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning.
All other fees represent fees billed for products and services provided by the accounting firm, other than the services reported for the other three categories.
33
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The audited financial statements of the Company are included in this report under Item 8.
(a)(2) Financial Statement Schedules
All financial statement schedules are included in the consolidated resultsfootnotes to the financial statements or are inapplicable or not required.
(a)(3) Exhibits
The following documents have been filed as part of operations for the Company during the year ended August 31, 2014:this report.
Revenue | $ | 293,804 | ||
Expenses | (158,696 | ) | ||
Net income attributable to T H Strategic | $ | 135,108 |
Exhibit No. | Description | |
Rule 13a14(a)/15d-14(a) Certification of Chief Executive Officer and Director | ||
32.1 | Section 1350 Certification of Chief Executive Officer and Director |
34
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Quality Online Education Group Inc.
| /s/ XuYe Wu | |
| XuYe Wu | |
| Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director |
Dated: Nov 20, 2022
|
| |
Name: | Xijin Wu | |
Title: | Director |
The following pro forma consolidated statements of operations have been prepared assuming that the acquisition of T H Strategic occurred on September 1 of each of the years presented.Dated: Nov 20, 2022
Pro Forma Consolidated For the year ended August 31, | ||||||||
2014 | 2013 | |||||||
Revenue | $ | 325,492 | $ | 369,108 | ||||
Expenses | (153,679 | ) | (225,156 | ) | ||||
Pro Forma Net Income Attributable To Ordinary Shareholders | $ | 171,813 | $ | 143,952 | ||||
Pro Forma Net Income Per Share | ||||||||
Basic | $ | 0.007 | $ | 0.012 | ||||
Diluted | $ | 0.007 | $ | 0.012 | ||||
Weighted average shares outstanding | ||||||||
Basic | 26,342,404 | 12,252,562 | ||||||
Diluted | 26,342,404 | 12,252,562 |
|
|
|
|
|
|
Property and equipment | $ | 1,909,653 | ||
Total assets acquired | $ | 1,909,653 |
The following pro forma consolidated statements of operations have been prepared assuming that the acquisition of Motion Tech occurred on September 1 of each of the years presented.
Pro Forma Consolidated For the year ended August 31, | ||||||||
2014 | 2013 | |||||||
Revenue | $ | - | $ | - | ||||
Expenses | (77,572 | ) | (851 | ) | ||||
Pro Forma Net Loss Attributable To Ordinary Shareholders | $ | (77,572 | ) | $ | (851 | ) | ||
Pro Forma Net Loss Per Share | ||||||||
Basic | $ | (0.003 | ) | $ | - | |||
Diluted | $ | (0.003 | ) | $ | - | |||
Weighted average shares outstanding | ||||||||
Basic | 26,342,404 | 12,252,562 | ||||||
Diluted | 26,342,404 | 12,252,562 |
|
|
|
|
|
|
August 31, | August 31, | |||||||
2014 | 2013 | |||||||
Bank balances and cash | $ | 95,811 | $ | 164,314 |
All cash was maintained in Hong Kong, PRC. In Hong Kong, there are no rules or regulations mandating an obligatory insurance of bank accounts. Management believes these financial institutions are of high credit quality.
|
|
| |
|
|
|
Year Ended August 31, 2014 | ||||
Balance due at September 1, 2013 | $ | 418,658 | ||
Amount repaid during the year | (418,658 | ) | ||
Repayment of loan from a related party | (105,690 | ) | ||
Amount advanced during the year | (557,451 | ) | ||
Foreign currency translation adjustment | 130 | |||
Balance due at August 31, 2014 | $ | (663,011 | ) |
Year Ended August 31, 2013 | ||||
Balance due at September 1, 2012 | $ | 241,036 | ||
Amount advanced during the year | 4,831,702 | |||
Amount repaid during the year | (4,655,559 | ) | ||
Foreign currency translation adjustment | 1,479 | |||
Balance due at August 31, 2013 | $ | 418,658 |
|
|
|
|
|
| |
|
|
| |
|
|
Property and equipment, net consist of the following:
August 31, | August 31, | |||||||
2014 | 2013 | |||||||
Property held for sale and used | $ | 1,909,062 | $ | 1,909,062 | ||||
Leasehold improvement | 134,613 | 85,345 | ||||||
Furniture and fixtures | 5,632 | 5,632 | ||||||
Office equipment | 6,730 | 6,730 | ||||||
Motor vehicle | 90,344 | 145,407 | ||||||
2,146,381 | 2,152,176 | |||||||
Less: Accumulated depreciation | (146,836 | ) | (63,486 | ) | ||||
$ | 1,999,545 | $ | 2,088,690 |
Depreciation expense included in general and administrative expenses for the years ended August 31, 2014 and 2013 amounted to $110,654 and $50,475, respectively.
The residential property held for sale and used held by Motion Tech is collateral for a banking facility with a maximum amount of $2,063,850 (HK$16 million).
|
|
|
|
|
|
Amount | ||||
Year ending August 31, | ||||
2015 | $ | 11,676 | ||
2016 | 11,676 | |||
2017 | 9,730 | |||
2018 | - | |||
Thereafter | - | |||
Total minimum lease payment | 33,082 | |||
Less: Imputed interest | (1,252 | ) | ||
Present value of net minimum lease payments | 31,830 | |||
Less: Current maturities of capital leases obligations | (10,843 | ) | ||
Long-term capital leases obligations | $ | 20,987 |
|
|
|
|
|
| |
|
Client list 1 | Client list 2 | Client list 3 | T H Strategic | Total | ||||||||||||||||
Amortized intangible assets: | ||||||||||||||||||||
Gross carrying amounts | ||||||||||||||||||||
Balance as of August 31, 2013 | $ | 1,025,667 | $ | 769,251 | $ | - | $ | - | $ | 1,794,918 | ||||||||||
Acquisition | - | - | 154,789 | 322,477 | 477,266 | |||||||||||||||
Balance as of August 31, 2014 | 1,025,667 | 769,251 | 154,789 | 322,477 | 2,272,184 | |||||||||||||||
Accumulated amortization | ||||||||||||||||||||
Balance as of August 31, 2013 | 821,129 | 179,949 | - | - | 1,001,078 | |||||||||||||||
Amortization expenses | 103,171 | 77,378 | 14,186 | 28,211 | 222,946 | |||||||||||||||
Balance as of August 31, 2014 | 924,300 | 257,327 | 14,186 | 28,211 | 1,224,024 | |||||||||||||||
Total amortized intangible assets | $ | 101,367 | $ | 511,924 | $ | 140,603 | $ | 294,266 | $ | 1,048,160 |
The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the years ended August 31, 2014 and 2013 are $222,946 and $180,519 respectively. The future amortization as of August 31, 2014 will be as follows:
Amount | ||||
Year ending August 31, | ||||
2015 | $ | 226,527 | ||
2016 | 125,160 | |||
2017 | 125,160 | |||
2018 | 125,160 | |||
2019 | 125,160 | |||
Thereafter | 320,993 | |||
$ | 1,048,160 |
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
|
Year ended August 31, | ||||||||
2014 | 2013 | |||||||
Income before tax | $ | 1,747,107 | $ | 777,097 | ||||
Expected Hong Kong income tax expense at statutory tax rate of 16.5% | $ | 288,273 | $ | 128,221 | ||||
Tax effect of expenses not deductible for tax purpose | 138,484 | - | ||||||
Tax effect of income not taxable for tax purpose | (6,193 | ) | - | |||||
Tax effect of tax losses not recognised | (28,836 | ) | - | |||||
Tax concession | (426 | ) | (213 | ) | ||||
Tax effect of temporary differences not recognised | 16,910 | 24,292 | ||||||
Utilization of tax losses | (193 | ) | - | |||||
Actual income tax expense | $ | 408,019 | $ | 152,300 |
The Company is not aware of any income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which the Company and are subject include fiscal years 1998 through 2013. The Company is not aware of any unrecorded tax liabilities which would impact the Company’s financial position or its result of operations as of August 31, 2014 and 2013.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
August 31, 2014 | August 31, 2013 | |||||||
Deferred tax (asset) / liability: | ||||||||
Difference between book and tax depreciation | $ | (2,836 | ) | $ | 2,340 |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Other major temporary differences that give rise to the deferred tax assets and liabilities are net operating losses carry forwards. As the amounts are immaterial as of August 31, 2014 and August 31, 2013, no deferred taxes have been provided for in the accounts.
|
|
|
|
|
|
|
| |||||||||
|
|
|
| |||||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
| |||||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
|
|
|
|
| |||||
|
Interest expenses for the years ended August 31, 2014 and 2013 are $78,660 and $127,101 respectively.
Bank loans repayment schedule is as follows:
August 31, 2014 | August 31, 2013 | |||||||
Year ending August 31, | ||||||||
2015 | $ | 569,425 | $ | 107,548 | ||||
2016 | 481,843 | 114,303 | ||||||
2017 | 432,570 | 118,253 | ||||||
2018 | 273,712 | 90,382 | ||||||
2019 | 279,430 | 79,363 | ||||||
Thereafter | 2,089,759 | 1,776,936 | ||||||
$ | 4,126,739 | $ | 2,286,785 |
The bank loans as outlined in the aforementioned tables are secured by related parties' and third parties' properties and personal guarantees.
|
|
|
|
|
August 31, 2014 | August 31, 2013 | |||||||
Deferred revenue – current portion | $ | 145,159 | $ | 145,114 | ||||
Deferred revenue – net of current portion | 290,319 | 435,343 | ||||||
$ | 435,478 | $ | 580,457 |
The Company has an agreement with a third party for consultancy services with a fixed fee and term of four years, renewable upon expiration. Deferred revenue to be recognized in next fiscal year (2015) is classified as current liabilities with the remaining balance classified as a non-current liabilities.
The total future revenue under such non-cancellable agreement with respect to consultancy service income as of August 31, 2014 is as follows:
Year Ending August 31, | Revenue | |||
2015 | $ | 145,159 | ||
2016 | 145,159 | |||
2017 | 145,160 | |||
Thereafter | - | |||
$ | 435,478 |
|
|
| |
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Year ended August 31, | ||||||||
2014 | 2013 | |||||||
Revenue: | ||||||||
Accounting & corporate services | $ | 450,671 | $ | - | ||||
Multi-disciplinary Advisory | 252,326 | - | ||||||
$ | 702,997 | $ | - | |||||
Direct cost of revenue:- | ||||||||
Accounting & corporate services | $ | 41,574 | $ | 107,534 | ||||
Corporate restructuring & insolvency | 129,455 | - | ||||||
$ | 171,029 | $ | 107,534 |
The balances associated with accounting & corporate services and corporate restructuring & insolvency primarily represent revenue and direct cost of revenue, which were the fees or expense charged by the Company's Chief Operating Officer and related parties as they are license holders of insolvency to execute the liquidation for the years ended August 31, 2014 and 2013.
See Notes 8 and 10 for discussion of advances to and from related parties.
|
|
|
|
|
| |
| |
| |
|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | -0- | -0- | 7,500,000 | |||||||||
|
|
|
| |||||||||
Equity compensation plans not approved by security holders | -0- | -0- | -0- | |||||||||
|
|
|
| |||||||||
Total | -0- | -0- | 7,500,000 |
|
|
|
|
|
|
|
| |
|
|
Year Ending August 31, | Rental | |||
2015 | $ | 473,300 | ||
2016 | 411,358 | |||
2017 | 411,358 | |||
2018 | 34,280 | |||
2019 | - | |||
Over five years | - | |||
$ | 1,330,296 |
|
|
Year Ending August 31, | Rental | |||
2015 | $ | 638,701 | ||
2016 | 603,863 | |||
2017 | 47,742 | |||
2018 | - | |||
2019 | - | |||
Over five years | - | |||
$ | 1,290,306 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
CONDENSED BALANCE SHEETS
August 31, 2014 | August 31, 2013 | |||||||
Assets | ||||||||
Investment in subsidiaries | $ | 1,591,704 | $ | 194,164 | ||||
Due from a related party | 96,579 | - | ||||||
Total assets | $ | 1,688,283 | $ | 194,164 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities | ||||||||
Accrued expenses | $ | 90,882 | $ | 65,011 | ||||
Due to a related party | - | 50,305 | ||||||
Total current liabilities | 90,882 | 115,316 | ||||||
Total liabilities | 90,882 | 115,316 | ||||||
Total stockholders’ equity | 1,597,401 | 78,848 | ||||||
Total liabilities and stockholders' equity | $ | 1,688,283 | $ | 194,164 |
CONDENSED STATEMENT OF INCOME
| For the year ended August 31, 2014 | For the year ended August 31, 2013 | |||||||
General and administrative expenses | $ | 246,308 | $ | 64,987 | |||||
Equity in income of subsidiaries | 1,084,886 | 582,638 | |||||||
Net income | $ | 1,331,194 | $ | 647,625 |
|
|
|
|
|
| |
| |
|
|
|
|
|
|
| |
| |
|
|
| |
| |
|
35