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EXCEL - IDEA: XBRL DOCUMENT - STUDIO II BRANDS INC | Financial_Report.xls |
EX-32 - STUDIO II BRANDS INC | studioiibrands_exh321.htm |
EX-31 - STUDIO II BRANDS INC | studioiibrands_exh311.htm |
EX-32 - STUDIO II BRANDS INC | studioiibrands_exh322.htm |
EX-31 - STUDIO II BRANDS INC | studioiibrands_exh312.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2014
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-51355
STUDIO II BRANDS, INC.
(Exact name of registrant as specified in its charter)
Florida (State or other jurisdiction of incorporation) | 65-0664963 (IRS Employer Identification Number) |
16/F Honest Building
9-11 Leighton Road
Causeway Bay, Hong Kong
(Address of principal executive offices)
Registrants telephone number, including area code: (852) 2890-1818
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act [ ] Yes [ X ] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the [ ]Yes [X] No
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 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.
[ X ] Yes [ ] No
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).
[ X ] Yes [ ] No
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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 the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes
[X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of the last business day of the registrants most recently completed second fiscal quarter. $0.00
As of June 30, 2014, the Issuer had 14,838,018 shares of common stock issued and outstanding.
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PART 1
ITEM 1.
BUSINESS.
Corporate History
Studio II Brands, INC. (the Company) was incorporated under the laws of the State of Florida on May 6, 1996. The Company was formed as a blank check or shell company for the purpose of seeking, investigating, and, if warranted, acquiring one or more properties or businesses. From inception to February 10, 2011, the Company remained in the development stage. The Companys only activities during this period were organizational activities, compliance with SEC reporting obligations, and seeking a suitable business acquisition.
On February 10 2011, the Company acquired all of the issued and outstanding shares of Hippo Lace Limited, a BVI corporation (HLL), which was incorporated in December, 2009. As a result of completion of this share exchange transaction, HLL became our wholly-owned subsidiary. Also, as more fully described below, HLLs subsidiary, Legend Sun Limited, a Hong Kong corporation (Legend Sun), which HLL acquired in February, 2010, became our operating subsidiary.
The Company completed the share exchange transaction with HLL in order to acquire the business operations carried on through its subsidiary, Legend Sun, and with the intent of focusing our business activity exclusively on those operations.
On March 29 2012, the Company acquired through its subsidiary all of the issued and outstanding shares of Sino Wish Limited, a Hong Kong corporation (Sino Wish), which was incorporated in November, 2009 and became the franchisee of the Company to operate Caffé Kenon restaurant at Tai Yau Plaza, Hong Kong since March, 2010. As a result of completion of this share exchange transaction, Sino Wish became our wholly-owned subsidiary.
Corporate Structure
The Chart below depicts the Companys corporate structure as of March 31, 2014. As depicted below, Studio II Brands owns 100% of HLL and HLL owns 100% of Legend Sun and Sino Wish.
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Current Operations
Through the Companys operating subsidiaries, Legend Sun and Sino Wish, the Company is in the business of operating coffee shop restaurants under the tradename Caffe Kenon. The Company currently owns and operates two Caffé Kenon coffee shops located in Hong Kong which have been in operation since June, 2009 and March, 2010 respectively. These shops are operated under the terms of a franchise agreement between HLL and Sizegenic Holdings Limited (Sizegenic), a British Virgin Islands corporation. Through HLL, the Company entered into a subfranchise agreement with Golden Spring Limited (GSL) in September 2013, pursuant to which GSL operates a Caffe Kenon restaurant in Hong Kong, and pays the Company franchise and management fees. Therefore, as at year ended March 31, 2014, the Company has a total of two owned Caffe Kenon stores and one subfranchised Caffe Kenon store in Hong Kong.
Sizegenic entered into an International Exclusive Distribution and Promotion Agreement (the Café Centro Agreement) with Café Centro Brazil Wurzburger Vittorio & C. S.a.s., an Italian corporation (Café Centro) on June 26, 2009, pursuant to which Sizegenic has the exclusive right to distribute and sell coffee products supplied by Café Centro and the exclusive license to use the brand name and trademark Caffe Kenon in business operations for a period of ten (10) years within the region consisting of Hong Kong, Macau, Taiwan and China. On February 10, 2010 and April 1, 2012, Sizegenic entered into franchise agreements with HLL pursuant to which HLL was granted the right to operate a Caffe Kenon restaurant at 38 Yiu Wa Street, Causeway Bay, Hong Kong and shop no. 208 and 209 of the 2nd floor of the Tai Yau Plaza shopping center in Wanchai, Hong Kong, respectively.
At its restaurants, the Company offers Italian-style espresso drinks using Kenon brand coffee imported from Italy. They also serve breakfast, lunch and dinner with a moderately-priced Italian style standard menu which includes pizza, spaghetti, risotto, salads, sandwiches and desserts. In addition, Caffé Kenon Bistro serves periodic specialty meals in addition to the standard menu items. The Company seeks to establish restaurant locations in shopping and commercial areas with significant foot traffic and with easy access to underground railroad or other public transportation. Our restaurants are designed comfortably with seating areas for customers around a counter area which includes display cases for pastries and other items and a work area where staff prepare espresso drinks. The Company uses a modern stylish design for the interior with a flexible combination of tables and chairs designed to allow us to host various types of events and to accommodate a total of approximately 50 and 80 guests, respectively.
Future Plan of Operations
The Companys future plan of operations is to seek to continue to expand by adding additional Café Kenon locations in Hong Kong and in China. Some of the new locations may be Company owned and operated as franchises of Sizegenic, and some may be subfranchise operations that are not owned by the Company, but from which the Company receives franchise and management fees. The Company also plans to search possible investment and business opportunities in different potential restaurant and catering service business segments including hotpot and traditional Chinese cuisine restaurants, and possible investment and business opportunities related to ownership and operation of a coffee farm and production of our own brand of packed coffee beans and canned coffee to be sold to wholesale and retail customers. The Company will require additional working capital in order to open new Company owned Café Kenon locations or to pursue other potential investment and business opportunities, and there is no assurance that such
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additional working capital funding will be available, or will be available on terms which are acceptable to the Company.
Subsequent to the end of the fiscal year, on May 28, 2014, the lease for the restaurant at 38 Yiu Wa Street, Causeway Bay, Hong Kong, expired and was not renewed by the Company, as the proposed increase in rent would have made the restaurant operations unprofitable. As a result, the restaurant, which was held by Legend Sun, was closed. After electing not to renew the lease for the restaurant at 38 Yiu Wa Street, Causeway Bay, Hong Kong, management entered into an agreement, through HLL, to acquire all of the issued and outstanding stock of Golden Spring Limited which had been operating a Caffe Kenon restaurant pursuant to the terms of a subfranchise agreement entered into with HLL in September, 2013. Upon completion of the acquisition, Golden Spring Limited will be a wholly owned subsidiary of HLL, the subfranchise agreement between HLL and Golden Spring Limited will be cancelled and the restaurant owned by Golden Spring Limited will continue operations as a Company-owned store. Management believes that the acquisition of Golden Spring Limited is beneficial for the Company because it means that the restaurant owned by Golden Spring will continue to operate as a Company-owned store, and the customer base from the closed store can be maintained, as the newly acquired restaurant is only 2 blocks away from the location of the closed store.
Recently, our management is actively seeking business opportunities in various regions in China, including Beijing, Shanghai and Sichuan Province. As a result of Chinas economic development, accelerated urbanization process and the change of household consumption habits, people's demand for restaurant/catering services is increasingly growing. Management believes that the Company can apply its previous experience providing restaurant/catering services in Beijing to explore business opportunities in China. The potential plans include acting as a franchisor, operating Company-owned restaurants, and entering in to joint ventures to operate restaurants with potential business partners.
Management believes that the two Caffé Kenon coffee shops currently operating in Hong Kong are not enough in building the image and branding of Caffé Kenon, and believes that expanding the number of shops can improve the performance of the Company, enhance brand building, and ultimately provide a benefit to the Companys stockholders. Subsequent to period ended March 31, 2014, management is working on a potential acquisition and an opening of a new Caffé Kenon coffee shop as follows:
(1) To consider the acquisition Sizegenic Holdings Limited:
Management believes the acquisition of Sizegenic, which possesses an International Exclusive Distribution and Promotion Agreement with Café Centro Brazil Wurzburger Vittorio &C. S.a.s., an Italian corporation, can stabilize the future supply of coffee products and reduce the cost of contracting with Sizegenic which incurs management expenses.
(2) Opening of a new Caffé Kenon coffee shop in Hong Kong with new operation pattern:
In February 2014, Management has secured the leasing of a shop containing approximately 1,500 feet for the opening of a new shop which would have an updated décor and which would operate differently than the existing shops. In the new location, customers would queue at the counter for the ordering of food instead of sitting at tables and placing their orders with a waiter.
The source of fund for the above development is satisfied by the advance from Mr Cheung Ming.
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Facilities
The Company currently maintains a mailing address at 16/F Honest Motors Building 9-11 Leighton Road Causeway Bay, Hong Kong, which is provided to us without charge pursuant to a verbal agreement with our President, Cheung Ming. The premises are provided to us without charge because the cost is considered to be immaterial. This property is currently under lease to Ever Lucid Limited, a Hong Kong corporation which is a subsidiary of Sizegenic, and is used for commercial purposes by Ever Lucid Limited and by other subsidiaries of Sizegenic. The lease term is from July 7, 2013 to July 6, 2015, at a monthly rental of HK$60,884 (approximately $7,825). The Company is also using a warehouse at Room 1622, 16/F, Tuen Mun Central Square, 28 Hoi Wing Road, Tuen Mun, N.T., Hong Kong to store spare items including shop furniture and equipment. The premises are provided by our President, Cheung Ming, and are leased to Legend Sun and Sino Wish at a monthly rental rate of HK$2,500 per each Company (approximately $320) pursuant to an agreement entered in March 2013. The agreement may be terminated by either party by giving one month written notice to other party before termination.
As of March 31, 2014, the Company leases premises at ground floor, Nam Hing Fong, 38 Yiu Wa Street, Causeway Bay, Hong Kong, and premises at shop no. 208 and 209 of the 2nd floor of the Tai Yau Plaza shopping center in Wanchai, Hong Kong for operation of the two Caffé Kenon restaurants. The lease for the premises located at Nam Hing Fong was for a term of 5 years, commencing June 1, 2009, at a monthly rental rate of HK$52,000 for the first three years and HK$65,000 for the last two years (approximately $6,667 and $8,333 per month respectively). The Company exercised an option to extend the term for an additional 2 years from June 1 2012 to May 31, 2014. In addition to monthly rent, the Company is also obligated to pay a monthly management fee of HK$3,897 (approximately $500), and quarterly government fees of HK$12,600 (approximately $1,615) throughout the term of the lease. At the time of execution of the option on the lease, the Company paid a refundable security deposit of HK$344,485 (approximately $44,278) representing 5 months rent and management fees. The lease may be terminated by the landlord prior to the expiration of its term in the event the Company breaches any of the material terms and conditions of the lease agreement. This lease expired on May 31, 2014, subsequent to the end of the fiscal year, and was not renewed by the Company. The Caffe Kenon restaurant previously operated in this location was closed.
The Companys other Caffé Kenon restaurant is located at shop no. 208 and 209 of the 2nd floor of the Tai Yau Plaza shopping center in Wanchai, Hong Kong. The center is part of a 24 floor office building situated at the area combining business and residential customers and just a few minutes walk to the underground railway station. The lease for these premises was for an initial term of 3 years, commencing March 1, 2010, at a monthly base rental rate of HK$58,120 (approximately $7,451) for the first three years, and included an option to extend the term for an additional 3 years at current market rent to be agreed with the landlord. On March 1, 2013, the Company exercised its option to extend the term of the lease for an additional 3 years and the parties agreed on a monthly base rental rate of HK$87,180 (approximately $11,205) for the extended term of the lease. In addition to monthly base rent, we are also obligated to pay a additional rent at 12% of the monthly gross sales of the shop in excess of the base rent of HK$87,180, monthly service charges of HK$11,624 (approximately $1,494) and quarterly government fee of HK$6,900 (approximately $886). At the time of execution of the option on the lease, the Company paid a refundable security deposit of HK$606,624 (approximately $77,972) representing 6-months base rent, service charge and government fee. The lease may be terminated by the landlord due in the event of a material default by
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the tenant as a result of failure to observe and perform its obligations of the lease.
Franchise Agreements
Pursuant to Franchise Agreements dated February 10, 2010 and April 1, 2012 between Sizegenic and HLL, the Companys operating subsidiaries, Legend Sun and Sino Wish, were each granted the right to operate a coffee shop restaurant under the Caffe Kenon name. The Franchise Agreement is based on the International Exclusive Distribution and Promotion Agreement (the Café Centro Agreement) entered by and between Café Centro Brazil Wurzburger Vittorio &C. S.a.s. Café Centro and Sizegenic on June 26, 2009 under which Sizegenic has the exclusive right to distribute and sell coffee products supplied by Café Centro and the exclusive license to use the brand name and trademark Caffe Kenon in business operations for a period of ten (10) years within the region consisting of Hong Kong, Macau, Taiwan and China.
The Franchise Agreement and the Supplementary Franchise Agreement between Sizegenic and HLL were for an initial term of three year, commencing on February 10, 2010, and included a right of renewal for a second three year term, which was exercised by HLL on February 10, 2013. The Franchise Agreement provides for payment of an initial franchise fee of HK$40,000 (approximately $5,145) for the 1st year and HK$80,000 (approximately $10,272) for each remaining year of the term, and payment of a monthly management fee of 10% of the franchisees net income. Under the terms of the franchise agreement, the franchisor has the right to approve the location, interior and exterior design, layout, furniture, fixtures, equipment, signs and decoration to be used by the franchisee, and the franchisee has the right to use the Caffé Kenon name and trademark and other associated intellectual property in the operation of its business. The franchisee is required to install and use a point of sale system designated by the franchisor and to provide sales data and financial information, including an annual financial report, to the franchisor. The franchise agreement gives the franchisor the right to automatically terminate the franchise agreement without a right to cure in certain circumstances such as insolvency of the franchisee, levy or execution against the franchisee by a creditor, or in the event the franchisee materially defaults under the terms of the franchise agreement three times within a 12 month period.
On September 16, 2013, the Company has entered into a subfranchise agreement with Golden Spring Limited (GSL), pursuant to which GSL was granted the right to operate a Caffe Kenon restaurant located at Tak Cheong Building, 29 Canal Road East, Causeway Bay, Hong Kong. Under the terms of the franchise agreement the subfranchisee paid an initial franchise fee of HK$100,000 (approximately $12,850), and is obligated to pay a monthly management fee equal to 10% of its gross income. On June 30, 2014, subsequent to the end of the fiscal year, the Company, acting through its subsidiary, HLL, entered into an agreement to acquire all of the equity of Golden Spring Limited. The acquisition was completed on June 30, 2014. As of that date, Golden Spring Limited became a wholly-owned subsidiary of HLL, and the subfranchise agreement between HLL and Golden Spring Limited was cancelled. As a result of the acquisition of Golden Spring Limited by HLL, Golden Spring Limited will now operate its Caffe Kenon restaurant as a Company-owned store instead of as a subfranchise.
Each of the foregoing franchise agreements executed by HLL had an initial term of 3 years from the date of execution, and included a renewal option for a second 3 year term. The franchise agreements also give the franchisor the right to approve the location, interior and exterior design, layout, furniture, fixtures, equipment, signs and decoration to be used by the franchisee, and the franchisee has the right to use the
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Caffé Kenon name and trademark and other associated intellectual property in the operation of its business. The franchisee is required to install and use a point of sale system designated by the franchisor and to provide sales data and financial information, including an annual financial report to the franchisor. The franchise agreement gives the franchisor the right to automatically terminate the franchise agreement without a right to cure in certain circumstances such as insolvency of the franchisee, levy or execution against the franchisee by a creditor, or in the event the franchisee materially defaults under the terms of the franchise agreement three times within a 12 month period.
Competition
The retail food industry, in which the Company competes, is made up of supermarkets, convenience stores, coffee shops, snack bars, delicatessens and restaurants, and is intensely competitive with respect to food quality, price, service, convenience, location and concept. The industry is often affected by changes in consumer tastes; regional or local economic conditions; currency fluctuations; demographic trends; traffic patterns; the type, number and location of competing food retailers and products; and disposable purchasing power. In Hong Kong where the Company currently operates two restaurants and has one subfranchised restaurant it competes with a large number of coffee shops which primarily sell coffee drinks and have only a limited selection of food. These include large international franchise operations such as Starbucks, and many small shops which have only a single location or a limited number of locations. In addition, because of the fact that it also has a full menu and offer moderately-priced meals, it also competes with numerous cafés and coffee shops which are primarily restaurants and may or may not offer espresso style coffee drinks. Therefore, at the present time, our primary competitors vary in each location, and consist of other moderately-priced restaurants, cafés and specialty coffee shops located in the same area.
Suppliers and Raw Materials
The Companys restaurants and franchisees purchase a substantial number of food and paper products, equipment and other restaurant supplies from a variety of third party distribution companies. The principal items purchased include food products, paper and packaging materials. The Company purchases all coffee beans and coffee products, including the necessary equipment to make espresso drinks, from Café Centro Brazil Wurzburger Vittorio &C. S.a.s., an Italian corporation (Café Centro) under the terms of the International Exclusive Distribution and Promotion Agreement (the Café Centro Agreement) dated June 26, 2009 between Sizegenic and Café Centro. In Hong Kong, where all of our restaurants and franchisees are currently located, there are many suppliers of food and paper products, and in each location we currently purchases these items from numerous local suppliers, none of which supply a significant percentage of the supplies and raw materials it requires.
Employees
The Company currently has a total of approximately 11 full-time and 7 part time employees, including 4 management and administration personnel, and approximately 14 other employees who work in the restaurants. The restaurant employees include chefs, baristas who make espresso coffee drinks, and servers.
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Intellectual Property
The Company has the right to use the Trademark Caffe Kenon in its operations pursuant to the terms of the Franchise Agreement with Sizegenic. The Franchise Agreement for Legend Sun had an initial term of one year, which expired February 10, 2013 and has been renewed for another two years. The Franchise Agreement for Sino Wish had an initial term of three years and an option to renew for another three years. These two Franchise Agreements had the Companys right to use the Trademark continues as long as they remain in effect. In addition, the Company has proprietary recipes it has developed which it uses and which it authorizes its franchisees to use.
Government Regulation
The Companys operating subsidiaries, Legend Sun and Sino Wish acquired Business Registration Certificate from the Inland Revenue Department of HKSAR on March 30, 2009 and November 26, 2009, respectively. Legend Sun and Sino Wish are required to renew the Certificate with a fee and to file annual profit tax return supported by audited financial statements on annual basis.
The restaurants acquired relevant restaurant license from Food and Environmental Hygiene Department of HKSAR for the provision of foods and beverages at the above-mentioned premises by compliance to the following conditions:
(a) compliance with licensing requirements in respect of health, ventilation, gas safety, building structure and means of escape imposed by Licensing Authority; and
(b) compliance with fire services requirements imposed by the Director of Fire Services.
Legend Sun and Sino Wish are required to provide statutory required benefits such as mandatory provident fund contribution, leaves, holidays and employee compensation insurance to eligible staff.
ITEM 2.
PROPERTIES.
The Company currently has no investments in real estate, real estate mortgages, or real estate securities. As mentioned in ITEM 1 Facilities, the Company maintains a mailing address at 16/F Honest Motors Building, 9-11 Leighton Road, Causeway Bay, Hong Kong which is provided without charge pursuant to a verbal agreement with our President, Cheung Ming, and as of March 31, 2014, the Company also leases premises at Ground Floor Nam Hing Fong, 38 Yiu Wa Street, Causeway Bay, Hong Kong, and at shop no. 208 and 209 of the 2nd floor of Tai Yau Plaza shopping center, Wanchai, Hong Kong, for operation of our restaurants. On May 31, 2014, subsequent to the end of the fiscal year, the lease for premises at Ground Floor Nam Hing Fong, 38 Yiu Wa Street, Causeway Bay, Hong Kong expired and was not renewed by the Company.
ITEM 3.
LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security
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holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
ITEM 4.
(REMOVED AND RESERVED)
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUERS PURCHASES OF EQUITY SECURITIES.
Market Information.
No public trading market exists for the Company's securities.
Holders.
As of March 31, 2014 there were 14,838,018 shares of common stock issued and outstanding and approximately 79 shareholders of record.
Dividends.
The Company has not declared or paid any cash dividends on its common stock during the fiscal years ended March 31, 2014 or 2013. There are no restrictions on the common stock that limit our ability to pay dividends if declared by the Board of Directors, and the holders of common stock are entitled to receive dividends when and if declared by the Board of Directors, out of funds legally available therefore and to share pro-rata in any distribution to the stockholders. Generally, the Company is not able to pay dividends if after payment of the dividends, it would be unable to pay its liabilities as they become due or if the value of the Companys assets, after payment of the liabilities, is less than the aggregate of the Companys liabilities and stated capital of all classes.
ITEM 6.
SELECTED FINANCIAL DATA.
Not Applicable.
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ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS," "INTENDS," "WILL," "HOPES," "SEEKS," "ANTICIPATES," "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD LOOKING STATEMENT. SUCH FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT ON FORM 10-K AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
RESULTS
The following discussion regarding results of operation relates to the business operations which are carried on through our operating subsidiaries, Legend Sun and Sino Wish. The Company believes the following information is relevant to an assessment and understanding of our results of operation and financial condition for the year ended March 31, 2014. The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes appearing elsewhere in this Form.
Our consolidated financial statements are stated in US Dollars and are prepared in accordance with generally accepted accounting principles of the United States (US GAAP).
All the below analysis are comparing the year ended March 31, 2014 and March 31, 2013.
Revenue
Revenue for both years ended March 31, 2014 and 2013 mainly consists of catering services income from company-owned restaurants in Hong Kong.
The increase of $3,564, or approximately 1%, is mainly due to the increase in subfranchisee income of $25,666 for the year compared with $Nil in last year. However, the increase in competition from the opening of similar styled restaurant nearby has reduced the revenue from catering services.
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Operating costs and expenses
Operating costs and expenses for the year ended Mar 31, 2014 and 2013 consist of the following:
| Twelve-Months Ended | ||
| 2014 | 2013 | 2014 compared to 2013 |
|
|
|
|
Food and supplies Staff costs | 172,048 238,431 | 181,103 219,887 | (9,055) 18,544 |
Rent, government fee, management fee | 280,705 | 231,780 | 48,925 |
Electricity, gas and utilities | 42,491 | 45,766 | (3,275) |
Depreciation | 32,724 | 32,954 | (230) |
Legal and professional fee | 85,170 | 103,111 | (17,941) |
Others | 95,267 | 65,731 | 29,536 |
| ───────── | ───────── | ───────── |
| 946,836 | 880,332 | 66,504 |
| ───────── | ───────── | ───────── |
Cost of revenue represents cost of food and beverage materials and products for catering services sold by company-owned restaurants. The decrease in cost of revenue of $9,055 for the year ended March 31, 2014, as compared to 2013 is in line with the decrease of catering service income due to the increase in competition.
The increase of operating costs and expenses for the year ended March 31, 2014 as compared to 2013, which represents an increase of $66,504 or approximately 7.55%, is mainly due to the continuing increase in staff cost and rental cost due to inflation and keen competition.
Other income and expenses
Other income and expenses for the year ended March 31, 2014 and 2013 mainly represent the tips from customers of Company-owned restaurants. There is no significant fluctuation for both years 2014 and 2013.
Net loss from operations
Net loss for the year ended March 31, 2014 amounting to $155,389. While the Companys restaurants can be operated at a near break-even level, legal and professional fee for maintenance and compliance with relevant SEC laws and regulations of the Company has made the Company suffered from loss in both years 2014 and 2013. The result of loss and its nature remain similar as last year.
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LIQUIDITY AND CAPITAL RESOURCES
A shareholder of the Company, Cheung Ming, has paid expenses on behalf of the Company in exchange for a promissory note, non-interest bearing and without fixed repayment term. Amounts payable to the aforesaid shareholder at March 31, 2014 and 2013 were $509,519 and $442,722, respectively.
The external source of liquidity attributed to operating income, improved gross margin contribution and stable operating expenses. No material unused sources of liquid assets.
The Company anticipates that the monthly average net cash inflow generated from our Company owned restaurants will be sufficient to meet our working capital requirements for our current level of operations and to sustain our business operations at the current levels for the next twelve months.
As of March 31, 2014 and 2013, there were no material commitments for capital expenditures for business operations.
The Company anticipates that it will need to raise additional funds to fully implement the potential business plan and related strategies as described in Future plan of operations above. The Company does not currently have any specific plans in place to raise additional capital, and there is no assurance that the Company will be successful in its efforts to raise additional capital. At such time as the Company does seek to raise additional capital it intends to consider both debt and equity financings to fund its plans.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2014 and 2013, the Company does not have any off-balance sheet arrangements.
SUBSEQUENT EVENTS
Acquisition of Golden Spring Limited. On June 30, 2014, the Companys wholly owned subsidiary, HLL, entered into a Stock Purchase Agreement with Golden Spring Limited and Jacou Koon, the sole shareholder of Golden Spring Limited, pursuant to which HLL agreed to acquire 100% of the issued and outstanding shares of Golden Spring Limited. Under the terms of the Stock Purchase Agreement, the purchase price for acquisition of Golden Spring was approximately $230,000, payable through issuance of 2,300,000 shares of the Companys common stock valued at a price of $0.10 per share. The acquisition was completed on June 30 2014. Prior to its acquisition by HLL, Golden Spring operated a Café Kenon restaurant as a subfranchisee of HLL. In conjunction with the acquisition of Golden Spring by HLL, the subfranchise agreement between HLL and Golden Spring was cancelled and Golden Spring is now operating its restaurant as a company-owned store.
Conversion of Amount Payable to Shareholder. As of March 31, 2014, the Company had an outstanding amount due and payable to its shareholder, Cheung Ming, of $509,519, which mainly represented amounts advanced by Cheung Ming for payment on behalf of the Company of legal and professional expenses. These advances by Cheung Ming were unsecured, non-interest bearing and without fixed repayment term. On May 26, 2014, the Board of Directors approved payment in full of the outstanding balance of this amount due and payable to its shareholder, through issuance to Cheung Ming of 5,095,190 shares of the
13
Companys common stock at a price of $0.10 per share. The issuance price of $0.10 per share was established by mutual agreement of Cheung Ming and the Companys Board of Directors, and does not bear any relationship to the assets, book value or net worth of the Company.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The full text of our audited consolidated financial statements as of March 31, 2014 and 2013 begins on page F-1 of this annual report.
14
STUDIO II BRANDS, INC. AND SUBSIDIARIES | ||
AUDITED FINANCIAL STATEMENTS | ||
FOR THE YEAR ENDED MARCH 31, 2014 | ||
|
| |
|
| |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| |
| Page | |
Report of Independent Registered Public Accounting Firm | F-1 | |
| ||
Consolidated Balance Sheets as of March 31, 2014 and 2013 | F-2 | |
| ||
Consolidated Statements of Operations |
| |
| for the years ended March 31, 2014 and 2013 | F-3 |
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Consolidated Statements of Stockholders Equity |
| |
| for the years ended March 31, 2014 and 2013 | F-4 |
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Consolidated Statements of Cash Flows |
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| for the years ended March 31, 2014 and 2013 | F-5 |
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Notes to the Consolidated Financial Statements | F-6-F-15 |
15
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
STUDIO II BRANDS, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Studio II Brands Inc. and subsidiaries (the Company) as of March 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the years in the two-year period ended March 31, 2014. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Studio II Brands Inc. and subsidiaries as of March 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders equity, and cash flows for each of the years in the two-year period ended March 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the Companys minimal revenues and its dependency from continued funding from its stockholder raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
UHY VOCATION HK CPA LIMITED
Certified Public Accountants
Hong Kong, the Peoples Republic of China, June 30, 2014
F-1
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2014 | March 31, 2013 |
| ||
ASSETS | ||
Current assets | ||
Cash | $ 19,837 | $ 22,705 |
Other receivables | 7,624 | - |
Due from related party | - | 52,120 |
Inventories | 4,706 | 6,010 |
| ─────── | ─────── |
Total current assets | 32,167 | 80,835 |
| ─────── | ─────── |
|
|
|
Property and equipment, net | 57,691 | 90,415 |
Security deposits | 135,769 | 135,226 |
Goodwill | 311,291 | 311,291 |
Tax recoverable | 1,129 | 4,751 |
| ─────── | ─────── |
Total assets | $ 538,047 | $ 622,518 |
| ======== | ======== |
|
|
|
LIABILITIES AND EQUITY |
|
|
Current liabilities |
|
|
Accounts payable and accrued expenses | $ 151,149 | $ 147,028 |
| ─────── | ─────── |
Total current liabilities | 151,149 | 147,028 |
|
|
|
Payable to stockholder | 509,519 | 442,722 |
| ─────── | ─────── |
Total liabilities | 660,668 | 589,750 |
| ─────── | ─────── |
|
|
|
COMMITMENS AND CONTINGENCIES |
|
|
EQUITY |
| |
Common stock, 100,000,000 shares authorized with par value $0.001; 14,838,018 shares issued and outstanding as of March 31, 2014 and 2013 |
14,838 |
14,838 |
Additional paid-in capital | 446,935 | 446,935 |
Accumulated deficit | (584,394) | (429,005) |
| ─────── | ─────── |
Total equity | (122,621) | 32,768 |
| ─────── | ─────── |
TOTAL LIABILITIES AND EQUITY | $ 538,047 | $ 622,518 |
| ======== | ======== |
|
See accompanying notes to consolidated financial statements
F-2
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
| Year ended March 31, 2014 | Year ended March 31, 2013 |
|
|
|
|
|
Revenue |
|
|
|
|
Food and beverage income |
|
| $ 760,180 | $ 782,282 |
Franchise and management fee income |
| 25,666 | - | |
|
|
| ──────── | ──────── |
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|
| 785,846 | 782,282 |
|
|
|
|
|
Operating costs and expenses |
|
|
|
|
Food and supplies |
|
| 172,048 | 181,103 |
Payroll and employee benefits |
|
| 238,431 | 219,887 |
Rental expenses |
|
| 280,705 | 231,780 |
Selling, general and administrative expenses |
| 255,652 | 247,562 | |
Other operating (income)/expense, net |
| (5,601) | (6,973) | |
|
|
| ──────── | ──────── |
|
|
| 941,235 | 873,359 |
|
|
| ──────── | ──────── |
Net loss before income taxes |
|
| (155,389) | (91,077) |
Income tax benefit/(expenses) |
|
| - | 1,258 |
|
|
| ──────── | ──────── |
Net loss |
|
| $ (155,389) | $ (89,819) |
|
|
| ──────── | ──────── |
Basic and fully diluted loss per common share |
|
$ 0.01 |
$ 0.01 | |
|
|
| ======== | ========= |
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|
|
|
|
Weighted average shares outstanding |
|
| 14,838,018 | 14,838,018 |
|
|
| ========= | ========= |
F-3
See accompanying notes to consolidated financial statements
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED MARCH 31, 2014
| Common Stock, Par value of $0.001 | Additional | Accumulated | ||
| Number | Amount | paid-in capital | deficit | Total Equity |
|
|
|
|
|
|
Balance as of April 1, 2012 | 14,838,018 | 14,838 | 446,935 | (339,186) | 122,587 |
Net loss for the year | - | - | - | (89,819) | (89,819) |
| ──────── | ──────── | ──────── | ───────── | ───────── |
Balance as of March 31, 2013 | 14,838,018 | $ 14,838 | $ 446,935 | $ (429,005) | $ 32,768 |
Net loss for the year | - | - | - | (155,389) | (155,389) |
| ───────── | ──────── | ──────── | ──────── | ───────── |
Balance as of March 31, 2014 | 14,838,018 | $ 14,838 | $ 446,935 | $ (584,394) | $ (122,621) |
| ========== | ========= | ========= | ========= | ========= |
F-4
See accompanying notes to consolidated financial statements
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended March 31, 2014 | Year ended March 31, 2013 |
Cash flows from operating activities | ||
Net loss | $ (155,389) | $ (89,819) |
Adjustments to reconcile net loss to net cash (used in) operating activities: |
|
|
Depreciation | 32,724 | 32,954 |
Changes in operating assets and liabilities: |
|
|
Other receivables | (7,624) | - |
Inventories | 1,304 | (2,060) |
Due from related parties | 52,120 | 268,676 |
Security deposit | (543) | (29,712) |
Accounts payable and accrued expenses | 4,121 | 37,806 |
Income tax payable | 3,622 | (8,823) |
Due to related parties | - | (26,072) |
Payable to stockholder | 66,797 | (184,572) |
Net cash (used in) operating activities | (2,868) | (1,622) |
Cash flow from investing activities |
|
|
Purchase of plant and machinery | - | (1,585) |
Net cash (used in) investing activities | - | (1,585) |
Net change in cash | (2,868) | (3,207) |
Cash |
|
|
Beginning of year | 22,705 | 25,912 |
End of year | 19,837 | 22,705 |
| =========== | ============ |
See accompanying notes to consolidated financial statements
F-5
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Studio II Brands, Inc. (the Company) was formed on May 6, 1996 in the State of Florida. The Companys activities before February, 2011 were primarily directed towards the raising of capital and seeking business opportunities.
The Company has transitioned from its development stage to operational activities as of February 10, 2011. On February 10, 2011, the Company entered into and consummated a share exchange agreement with Hippo Lace Limited (HLL), a BVI corporation and Mr. Gu Yao (Gu), the sole stockholder of HLL to acquire Gus 100% interests of HLL and its wholly owned subsidiary, Legend Sun Limited (Legend Sun) a limited liability company incorporated and domiciled in Hong Kong and its principal activity is to provide catering services in Hong Kong. In conjunction with the acquisition, the Company completed the closing of the exchange transaction under the terms of the Exchange Agreement and Supplementary Agreement on February 10, 2011 by issued 2,291,100 shares of its Common Stock to Gu as consideration (i) to acquire all of the issued and outstanding shares of HLL owned by Gu valued at $34,450 or approximately $0.015 per share, and (ii) to pay off the outstanding stockholder loan owed to Gu Yao by HLL. Accordingly, after completion of the transaction described above, the outstanding stockholder loan in the amount of $184,226 was owed by HLL to the Company.
On March 29, 2012, the Company through its subsidiary HLL entered into and consummated a stock purchase agreement with Sino Wish Limited (Sino Wish) and Ms Vivian Choi (Vivian), the sole stockholder of Sino Wish to (i) acquire Vivians 100% interests of Sino Wish which is incorporated and domiciled in Hong Kong as a Companys franchisee to operate Caffé Kenon restaurant at Tai Yau Plaza, Hong Kong, and (ii) repay the stockholders loan from Vivian to HLL. The purchase price for the acquisition of Sino Wish amounted to $280,000, and was determined through arms length negotiation. A total of $191,002 was paid through issuance to the seller of a total of 2,938,742 shares of common stock of the Company valued at $0.065 per share. Such shares are restricted securities as defined in Rule 144 under the Securities Act of 1933. The balance of the purchase price in the amount of $88,998 is payable through the assumption of the outstanding balance of a stockholder loan owed by Sino Wish to the seller. The stockholder loan assumed by HLL is due and payable, without interest, in four equal quarterly installments, with payments due as of the last day of each calendar quarter following the Closing Date hereunder, with the first such installment due on or before December 31, 2012, and with the entire unpaid balance due on or before March 31, 2013. HLL or its designees had the option to prepay the stockholder loan in whole or in part at any time during the fiscal year from April 1, 2012 to March 31, 2013. The loan of $88,998 had been fully repaid as of March 31, 2013.
NOTE 2 GOING CONCERN AND MANAGEMENTS PLANS
The Companys independent registered public accounting firms report of the consolidated financial statements for the years ended March 31, 2014 and 2013 contained an explanatory paragraph regarding the Companys ability to continue as a going concern.
These consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, they do not include any adjustments that might result from the outcome of this uncertainty. The Companys minimal revenues, its dependency on continuing funding from its stockholders raise substantial doubt about its ability to continue as a going concern. The Company's business plan includes raising funds from outside potential investors. However, there is no assurance that it will be able to do so.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Companys presentation currency is the United States Dollar.
F-6
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b)
Principles of consolidation
The audited consolidated financial statements as of March 31, 2014 and 2013 include the Company and its wholly-owned subsidiaries, HLL, Legend Sun and Sino Wish. All significant intercompany accounts and transactions have been eliminated in consolidation.
(c)
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Companys significant estimates include the reserves related to receivables, the recoverability and useful lives of long lived assets and realizable values for inventories.
(d)
Foreign currency translation
Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rate of exchange prevailing during the period; and the stockholders equity is translated at historical exchange rate. The related transaction adjustments are reflected in Accumulated other comprehensive income / (loss) in the equity section of the consolidated balance sheet.
|
| March 31, 2014 | March 31, 2013 |
|
|
|
|
Period end HK$:US$ exchange rate |
| $ 7.7567 | $ 7.7742 |
Average twelve-months ended HK$:US$ exchange rate |
| $ 7.7586 | $ 7.7769 |
(e)
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Improvements to leased assets or fixtures are amortized over their estimated useful lives or lease period, whichever is shorter. Expenditures for repairs and maintenance, which do not extend the useful life of the assets, are expensed as incurred.
Depreciation expense is recorded over the assets estimated useful lives or lease period, using the straight line method, at the following annual rates:
Furniture and equipment: 10% - 20%, per annum
Computer equipment: 10%, per annum
Leasehold improvements: over the lease term or useful life
(f)
Inventories
Inventories consist of finished goods which include food and beverage materials and products for catering service. Inventories are measured at the lower of cost or market value. The cost of inventories comprises all costs of purchases, costs of conversion and other costs incurred in bringing the inventories to their present location and condition and is assigned by using a first-in first-out basis. Market value is determined by reference to selling prices after the balance sheet date or to managements estimates based on prevailing market conditions. The management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required.
(g)
Security deposits
Security deposits mainly consist of five months rental and management fee security deposits, electricity and water meter deposits for company owned restaurants.
F-7
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h)
Cash
Cash consist of cash on hand and at banks. The Company's cash deposits are held with financial institutions located in United States and Hong Kong. Management believes these financial institutions are of high credit quality.
(i)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in an acquisition. Accounting Standards Codification (ASC)-350-30-50 Goodwill and Other Intangible Assets requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter each year. Goodwill impairment is computed using the expected present value of associated future cash flows. There was no impairment of goodwill as of March 31, 2014.
(j)
Impairment of long-lived assets
Long-lived assets are comprised of property and equipment. Pursuant to the provisions of ASC360-10, Property, plant and equipment, long-lived assets to be held and used are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable by comparing the undiscounted cash flows associated with the assets to their carrying amounts. If such a review indicates an impairment, the carrying amount would be reduced to fair value.
Based on the Companys assessment, there were no events or changes in circumstances that would indicate any impairment of long-lived assets as of March 31, 2014.
(k)
Accounts payable and accrued expenses consist of the following:
| March 31, 2014 | March 31, 2013 |
|
|
|
Accounts payable | $ 27,969 | $ 26,145 |
Payroll and rental expenses | 80,107 | 72,903 |
Other operating expenses | 43,073 | 47,980 |
| ──────── | ──────── |
| $ 151,149 | $ 147,028 |
| ========= | ========= |
(l)
Fair value measurements
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.
F-8
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying values of cash, accounts and other receivables, accounts payable and accrued expenses, and short-term borrowings from related party approximate fair values due to their short maturities.
There was no asset or liability measured at fair value on a non-recurring basis as of March 31, 2014.
(m)
Income Taxes
Income taxes are provided for using the liability method of accounting in accordance with ASC 740 Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be effective when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of income in the period that includes the enactment date.
The Company follows a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.
(n)
Other comprehensive income
The Company has adopted ASC 220 Comprehensive Income. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments.
(o)
Revenue recognition
Revenue represents the invoiced value of goods sold or services provided. Revenue is recognized when all the following criteria are met:
(i)
Persuasive evidence of an arrangement exists.
(ii)
Services had been rendered.
(iii)
The sellers price to the buyer is fixed or determinable, and
(iv)
Collectivity is reasonably assured.
Revenue from sales is recognized when food and beverage products are sold. Franchise fee income on the annual fee for sublicensing of the brand name and trademark Caffe Kenon and the 10% management fee on eligible monthly net income of subfranchiee are recognized after granting the non-exclusive rights and all contractual obligations are performed and report of net income from subfranchisee respectively.
(p)
Employee benefits
The Company operates a Mandatory Provident Fund Scheme (the "MPF Scheme") under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds. The Company's contributions to the scheme are expensed as incurred and are vested in accordance with the scheme' vesting scales.
F-9
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(q)
Segment information
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys operating segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue and operating results of the two operating subsidiaries in Hong Kong. As such, management has determined that the two subsidiaries are the Companys only operating segment. As the Companys operations and customers are principally all located in Hong Kong, no geographic information has been presented.
(r)
Commitments and contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter.
As of March 31, 2014, the Company's management has evaluated all such proceedings and claims. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position, liquidity or results of operations.
(s)
Recent accounting pronouncements
In July 2013, the FASB issued ASU No. 2013-11, which amends the guidance in ASC 740, Income Taxes. ASU No. 2013-11 requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. The amended guidance is to be applied prospectively and is effective for reporting periods (interim and annual) beginning after December 15, 2013. The implementation of the amended guidance is not expected to have a material impact on our consolidated financial position or results of operations.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment of the Company consist primarily of restaurant facilities and equipment owned and operated by the Company's wholly owned subsidiaries. Property and equipment as of March 31, 2014 and 2013 are summarized as follows:
| March 31, 2014 | March 31, 2013 |
|
|
|
Furniture & equipment | $ 76,644 | $ 76,644 |
Leasehold improvement | 113,150 | 113,150 |
Computer equipment | 14,703 | 14,703 |
| ──────── | ──────── |
Total | 204,497 | 204,497 |
Accumulated depreciation and amortization | (146,806) | (114,082) |
| ──────── | ──────── |
Balance as at year end | $ 57,691 | $ 90,415 |
| ========= | ========= |
Depreciation and amortization expense for the years ended March 31, 2014 and 2013 were $32,724 and $32,954, respectively.
F-10
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 SECURITY DEPOSITS
Security deposits mainly consist of five months rental and management fee security deposits, electricity and water meter deposits for company owned restaurant, and was recorded by the time of payment. Security and deposits as of March 31, 2014 and 2013 are summarized as follows:
| March 31, 2014 | March 31, 2013 |
|
|
|
Rental and management fee security deposit | $ 120,839 | $ 120,355 |
Electricity, water and gas deposit | 11,087 | 10,914 |
Food supplies deposit | - | 2,953 |
Other deposit | 3,843 | 1,004 |
| ──────── | ──────── |
| $ 135,769 | $ 135,226 |
| ========= | ========= |
NOTE 6 OPERATING COST AND EXPENSES
Operating cost and expenses consist of the following for the years ended March 31, 2014 and 2013:
|
|
| March 31, 2014 | March 31, 2013 |
|
|
|
|
|
Food and supplies |
|
| $ 172,048 | $ 181,103 |
Staff costs |
|
| 238,431 | 219,887 |
Property rent, rate and management fee
|
|
| 280,705 | 231,780 |
Electricity and utilities |
|
| 42,491 | 45,766 |
Depreciation |
|
| 32,724 | 32,954 |
Professional and audit fee |
|
| 85,170 | 103,111 |
Others |
|
| 95,267 | 65,731 |
|
|
| ──────── | ──────── |
Total |
|
| $ 946,836 | $ 880,332 |
|
|
| ========= | ========= |
NOTE 7 FRANCHISE ARRANGEMENTS
Franchise arrangements are pursuant to franchise agreements entered by the Company as the franchisee and Sizegenic Holdings Limited as the franchisor, including payment to Sizegenic of franchise fee payable on anniversary basis and monthly management fee base upon a percent of franchisees net income after tax throughout the term of franchise. Under this arrangement, two franchise agreements are entered in February 2010 and April 2012, in which the Company is granted the right to operate café bistro using the brand name Caffe Kenon for a term of 3 years. Franchise fee expenses on the use of the license of the brand name and trademark Caffe Kenon is recorded upon the granting of the non-exclusive rights by Sizegenic as the fee is non-refundable to and non-cancellable by the Company.
Franchise fee income on the sublicensing of the brand name and trademark Caffe Kenon is recognized upon the granting of the non-exclusive rights to the franchisee as the fee is non-refundable to and non-cancellable by the franchisee and the Company has no further obligations since they are all assumed by franchisee throughout the term.
The franchisee and the subfranchisees pay related occupancy costs including rent, property management fee and government rent and rates, insurance and maintenance for their owned restaurant. Franchisor has no obligation to any legal consequences arose from what the franchisee and subfranchisees assumed.
F-11
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The franchisee and subfranchisees have the right to renew for one additional term equal to the initial term granted under Franchisors franchise agreement after expiration of the initial term provided that franchisee and subfranchisees have, during the term of the agreement, substantially complied with all its provisions. Franchisee and subfranchisees must pay franchisor, three months prior to the date of renewal, a renewal fee to be agreed between franchisor and the franchisee/subfranchisees.
There is no future minimum franchise fee payment due from and due to the Company under existing franchise and subfranchise arrangements.
Franchise fees owe to Sizegenic consist of franchise and subfranchise annual fee and monthly franchise management fee applicable to profit after tax of Company-owned restaurant.
The franchise annual fee paid to Sizegenic for the Company-owned restaurants for the year 2014 was $6,400.
NOTE 8 SEGMENT INFORMATION
The Company has two reportable segments that include (1) ownership of Caffe Kenon coffee shop restaurants operated in Hong Kong under the terms of a franchise agreement, and (2) granting of a subfranchise to operate one Caffe Kenon coffee shop restaurant in Hong Kong. The Company reports only one geographical area for both 2014 and 2013. All the long lived assets of the Company are located in Hong Kong.
Each reportable segment is separately organized and focuses on different customer groups of consumers and subfranchisees. Each reportable segment prepares a stand-alone set of financial reporting package including information such as revenue, expenses, and goodwill, and the package is regularly reviewed by the Chief Executive Officer.
The following is the summary of relevant information relating to each segment reconciled to amounts on the accompanying consolidated financial statements for the years ended March 31, 2014 and 2013.
Year ended March 31, 2014
| Franchise | Subfranchise | Corporate | Total |
|
|
|
|
|
Revenue | $ 760,180 | $ 25,666 | $ - | $ 785,846 |
|
|
|
|
|
Depreciation and amortization | (32,724) | - | - | (32,724) |
|
|
|
|
|
Operating costs and expenses excluding depreciation and amortization | (824,499) | - | (89,613) | (914,112) |
| ───────── | ──────── | ──────── | ──────── |
Operating income/(loss) | (97,043) | 25,666 | (89,613) | (160,990) |
|
|
|
|
|
Other income | 5,601 | - | - | 5,601 |
| ───────── | ──────── | ──────── | ──────── |
Total other income (net) | 5,601 | - | - | 5,601 |
|
|
|
|
|
Income tax expenses | - | - | - | - |
| ───────── | ──────── | ──────── | ──────── |
Net (loss)/income after tax | $ (91,442) | $ 25,666 | $ (89,613) | $ (155,389) |
| ========== | ========= | ========= | ========= |
Total assets, excluding goodwill | $ 213,267 | $ 7,624 | $ 5,865 | $ 226,756 |
Goodwill | $ 311,291 | $ - | $ - | $ 311,291 |
Capital expenditure | $ - | $ - | $ - | $ - |
| ========== | ========= | ========= | ========= |
F-12
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended March 31, 2013
| Franchise | Subfranchise | Corporate | Total |
|
|
|
|
|
Revenue | $ 782,282 | $ - | $ - | $ 782,282 |
|
|
|
|
|
Depreciation and amortization | (32,954) | - | - | (32,954) |
|
|
|
|
|
Operating costs and expenses excluding depreciation and amortization |
(748,044) |
- |
(99,334) |
(847,378) |
| ───────── | ──────── | ──────── | ──────── |
Operating income/(loss) | 1,284 | - | (99,334) | (98,050) |
|
|
|
|
|
Other income | 6,973 | - | - | 6,973 |
| ───────── | ──────── | ──────── | ──────── |
Total other income (net) | 6,973 | - | - | 6,973 |
Income tax expenses | 1,258 | - | - | 1,258 |
| ───────── | ──────── | ──────── | ──────── |
Net income/(loss) after tax | $ 9,515 | $ - | $ (99,334) | $ (89,819) |
| ========== | ========= | ========= | ========= |
Total assets, excluding goodwill | $ 255,406 | $ - | $ 55,821 | $ 311,227 |
Goodwill | $ 311,291 | $ - | $ - | $ 311,291 |
Capital expenditure | $ 1,585 | $ - | $ - | $ 1,585 |
| ========== | ========= | ========= | ========= |
NOTE 9 INCOME TAX
The Company and its subsidiaries are subject to income tax on an entity basis for income arising in or derived from the tax jurisdictions in which they operate.
The Company and HLL have not provided for income tax due to continuing loss. Substantially all of the Companys income before income tax expenses is generated by its operating subsidiaries, Legend Sun and Sino Wish, in Hong Kong.
A reconciliation of the expected income tax expense (based on HK income tax rate) to the actual income tax expense is as follows:
|
|
| Year ended March 31, 2014 | Year ended March 31, 2013 |
|
|
|
|
|
Loss before tax |
|
| $ (155,389) | $ (91,077) |
HK income tax rate |
|
| 16.5% | 16.5% |
Expected income tax credit calculated at HK income tax rate |
|
| (25,639) | (15,028) |
Corporate expenses not deductible for tax purposes |
|
| 14,787 | 16,390 |
Overprovision in previous year |
|
| - | (1,542) |
Tax exemption |
|
| - | (844) |
Temporary difference not recognized |
|
|
| 2,282 |
Tax loss carryforwards |
|
| 10,852 | - |
Less: valuation allowance |
|
| (10,852) | - |
|
|
| ──────── | ──────── |
Total |
|
| $ - | $ 1,258 |
|
|
| ========= | ========= |
F-13
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's income tax provision in respect of operations in Hong Kong is calculated at the applicable tax rates on the estimated assessable profits for the year based on existing legislation, interpretations and practices in respect thereof. The standard tax rate applicable to the Company was 16.5%.
Realization of the Companys net deferred tax assets is dependent upon the Companys ability to generate future taxable income in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and net operating loss carryforwards. The valuation allowance increased during the years ended March 31, 2014 was primarily related to increases in net operating loss carryovers, which the Company does not expect to realize.
NOTE 10 OPERATING LEASE COMMITMENTS
The Company entered into rent agreements on June 1, 2009 and March 1, 2010 to lease premises for operation of two restaurants located at ground floor of Nam Hing Fong, Causeway Bay and shop no. 208 and 209 of Tai Yau Plaza, Wanchai respectively. The lease of premises at Nam Hing Fong was for a term of 5 years at a monthly rental rate of $6,667 for the first three years and $8,333 for the last two years.
The lease of premises at Tai Yau Plaza was for a term of 6 years at a monthly rental rate of $7,451 and monthly service charges of $1,304 for the first three years and at the prevailing current market rate for the last three years.
As of March 31, 2014, the total future minimum lease payments under operating lease in respect of leased premises are payable as follows:
Year ended March 31,
2015 | $ 151,632 |
2016 | 123,633 |
| ───────── |
Total | $ 275,265 |
| ========== |
NOTE 11 RELATED PARTY TRANSACTIONS
Balance with related party | March 31, 2014 | March 31, 2013 |
Payable to stockholders: |
|
|
(a) Cheung Ming, stockholder | $ 509,519 | $ 442,722 |
| ========== | ========== |
|
|
|
Due from related party: |
|
|
(b) Sizegenic Holdings Limited group companies ("Sizegenic group") Common stockholder, Cheung Ming |
$ - |
$ 52,120 |
| ========== | ========== |
(a) The payables to Cheung Ming mainly represent payment by Cheung Ming on behalf of the Company for primarily the legal and professional expenses. This advance is unsecured, non-interest bearing and without fixed repayment term.
(b) The amount receivable from Sizegenic group represents cash advance to Sizegenic Holdings Limited and its group companies for operation need. These advances are unsecured, non-interest bearing.
F-14
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 CERTAIN RISK AND CONCENTRATION
Credit risk
As of March 31, 2014 and March 31, 2013, substantially all of the Companys cash included bank deposits in accounts maintained within Hong Kong, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
There were no significant customers or vendors which accounts for 10% or more of the Companys revenues or purchases during the periods presented.
NOTE 13 SUBSEQUENT EVENTS
Legend Suns lease agreement with landlord was expired on May 31, 2014 and the Company did not renew the contract. As a result, the restaurant located at Nam Hing Fong, 38 Yiu Wa Street, Causeway Bay, Hong Kong was closed down and May 28, 2014 was the last business day.
To enable the Company to maintain two operating restaurants, on June 30, 2014, Hippo Lace entered into a Stock Purchase Agreement with Golden Spring Limited and Jacou Koon, the sole shareholder of Golden Spring Limited, pursuant to which HLL agreed to acquire 100% of the issued and outstanding shares of Golden Spring Limited. Under the terms of the Stock Purchase Agreement, the purchase price for acquisition of Golden Spring was approximately $230,000, payable through issuance of 2,300,000 shares of the Companys common stock. The acquisition was completed on June 30, 2014. Golden Spring previously operated as a subfranchisee restaurant as discussed in Note 9 Franchise arrangement. In conjunction with the acquisition of Golden Spring by HLL, the subfranchise agreement with Golden Spring was cancelled and Golden Spring is continuing operation of its restaurant as a company-owned store.
As discussed in Note 12 Related Party Transactions, as of March 31, 2014, the Company had an outstanding amount due and payable to its shareholder, Cheung Ming, of $509,519, which mainly represented amounts paid by Cheung Ming on behalf of the Company for legal and professional expenses. Advances made by Cheung Ming were unsecured, non-interest bearing and without fixed repayment term. On May 26, 2014, the Board of Directors approved payment in full of the outstanding balance of this amount due and payable to its shareholder, through issuance to Cheung Ming of 5,095,190 shares of the Companys common stock at a price of $0.10 per share. The issuance price of $0.10 per share was established by mutual agreement of Cheung Ming and the Companys Board of Directors, and does not bear any relationship to the assets, book value or net worth of the Company.
F-15
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term disclosure controls and procedures to mean the company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our President and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our President and Chief Financial Officer have identified a material weakness in connection with the preparation of our consolidated financial statements as of and for the years ended March 31, 2014 and 2013 have thus concluded that our disclosure controls and procedures were not effective to provide reasonable assurance of the achievement of these objectives. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness and control deficiency primarily related to absence of a Chief Financial Officer with appropriate professional experience with U.S. GAAP and SEC rules and regulations.
We believe that the material weakness and other control deficiencies we have identified are temporary because our management intends to hire a consultant but based on the current size and cashflow of the company, we are not able to do so. Our management intends to conduct an assessment of the effectiveness of our disclosure control and procedures, and internal control over financial reporting in the coming months if we acquire another operating business or assets, and re-consider the need for hiring a consultant.
16
Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company also is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company's internal control over financial reporting is defined as a process designed 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 internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management, including the President and Chief Financial Officer, does not expect that the Company's disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
With the participation of the President and Chief Financial Officer, our management evaluated the effectiveness of the Company's internal control over financial reporting as of March 31, 2014 based upon the framework in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, and due to the identified material weakness and internal control deficiency as discussed above, our management has concluded that, as of March 31, 2014, the Company's internal control over financial reporting was not 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 by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control. The Company continues to invest resources in order to upgrade internal controls.
17
ITEM 9B.
OTHER INFORMATION.
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
As of March 31, 2014, the directors and executive officers serving the Company were as follows:
Name | Age | Position |
Cheung Ming | 54 | President and Chairman |
Cheung Sing | 51 | Director and Vice Chairman |
Chan Tak Hing | 63 | Director |
The directors named above will serve until the next annual meeting of the Company's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated. There is no arrangement or understanding between any of the directors or officers of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current directors to the Company's board. There are also no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of the Company's affairs.
The directors and officers will devote their time to the Company's affairs on an "as needed" basis, which, depending on the circumstances, could amount to as little as two hours per month, or more than forty hours per month, but more than likely will fall within the range of five to ten hours per month. There are no agreements or understandings for any officer or director to resign at the request of another person, and none of the officers or directors are acting on behalf of, or will act at the direction of, any other person.
Biographical Information
Cheung Ming - Mr. Cheung Ming is 54 years old. Mr. Cheung Ming has served as President and as a Director of the Company since April 13, 2012, and has served as Chief Financial Officer since September 21, 2012. In addition to his work with the Company, Mr. Cheung Ming also serves as the Chief Executive Officer of Hengli & Liqi Furniture Limited, a Hong Kong corporation that specializes in furniture production from early 2006 to the present. As President of the Company, Mr. Cheung Ming was responsible for the overall business development of the Company. Mr. Cheung Ming was appointed as a director because he has extensive business management experience, including 27 years of experience in the area of retail business in China, Hong Kong and Taiwan.
18
Cheung Sing Mr. Cheung Sing is 51 years old. Mr. Cheung Sing has served as a Director of the Company since April, 2008, and as Vice Chairman of the Board of Directors since November, 2010. On May 16, 2011, Cheung Sing was appointed as President, Chief Executive Officer and Chairman of the Board of Directors. On February 17, 2012, Cheung Sing resigned from the position as Chief Executive Officer of the Company, and Chairman of the Board of Directors. On April 13, 2012, Cheung Sing resigned from the position as President of the Company. In addition to his work with the Company, from July, 1999, to the present, Mr. Cheung Sing, has been the Vice President of Hengli & Liqi Furniture Limited which is located in Hong Kong and is in the business of manufacturing indoor furniture. As Vice President of Hengli & Liqi, Mr. Cheung Sing is responsible for product developments, sales presentation, order executions and customer relations. From June 2000 to December 2002, Mr. Cheung Sing served as the Director of Operations of China Merchandise Company Limited (CMCL) which is located in Ningbo, China and is in the business of manufacturing outdoor furniture. As Director of Operations of CMCL, Mr. Cheung Sing was responsible for marketing and sales, order executions and the administration of the office in Ningbo. Mr. Cheung Sing was appointed as a director because he has extensive management experience in various business areas including manufacturing, product development, sales and marketing in both Hong Kong and China.
Chan Tak Hing Mr. Chan is 63 years old and since November, 2010 has served as a Director of the Company. From September, 2009, to the present, he has served as Executive Chef of Ever Lucid, Ltd., and responsible for the management of kitchen operations. Mr. Chan was a Chef of a Chinese restaurant from mid-year of 1996 to 1999 and looked after his grandchildren until August, 2009. Mr. Chan has 30 years experiences of Chinese and Western style cuisine and kitchen management. Prior to joining the Company, Mr. Chan served various styles of Chinese and Western restaurants included Chinese traditional style and hotpot restaurants, western style bistros and restaurants. Mr. Chan was appointed as a director because of his extensive experience in food preparation and kitchen management.
Family Relationships
Mr. Cheung Ming and Mr. Cheung Sing are brothers.
Involvement in Certain Legal Proceedings
None of our officers, directors, promoters or control persons has been involved in the past five (5) years in any of the following:
(1)
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2)
Any conviction in a criminal proceedings or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3)
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or 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
19
(4)
Being found by a court of competent jurisdiction (in a civil action), the SEC or the U.S. Commodity Futures Trading Commission to have violated a federal or state securities laws or commodities law, and the judgment has not been reversed, suspended, or vacated.
Directorships
None of the Companys executive officers or directors is a director of any company with a class of equity securities registered pursuant to Section 12 of the Securities exchange Act of 1934 (the Exchange Act) or subject to the requirements of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership of Form 3 and changes in ownership on Form 4 or Form 5 with the Securities and Exchange Commission. Such officers, directors and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, the Company believes that, as of March 31, 2014, all Section 16(a) filing requirements applicable to its officers, directors and 10% stockholders were satisfied.
Code of Ethics
The Company has not yet adopted a code of ethics. The Company intends to adopt a code of ethics in the near future.
Audit Committee Expert
The Company does not have an Audit Committee because the Company does not currently have any material operations. Because the Company does not have an Audit Committee it does not currently have a financial expert serving on an Audit Committee.
ITEM 11.
EXECUTIVE COMPENSATION.
No plan or non-plan compensation has been awarded to, earned by, or paid to any director or executive officer of the Company during the fiscal years ended March 31, 2014 and 2013. There is no plan or understanding, express or implied, to pay any compensation to any director or executive officer pursuant to any compensatory or benefit plan as a result of the acquisition of HHL through completion of stock exchange, although it anticipates that it eventually will compensate our officers and directors for services with stock or options to purchase stock, in lieu of cash.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS.
Security Ownership of Management and Certain Beneficial Owners
20
The following table sets forth, as of March 31, 2014, the ownership of each executive officer and director of the Registrant, and of all executive officers and directors of the Registrant as a group, and each person known by the Registrant to be a beneficial owner of 5% or more of its common stock. Except as otherwise noted, each person listed below is a sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any options, warrants or other right to acquire additional securities of the Registrant except as may be otherwise noted.
Title and Class | Name and Address | Amount and Nature | Percent of class |
Common | Cheung Ming (1) 16/F Honest Motors Building, 9-11 Leighton Road, Causeway Bay, Hong Kong | 5,023,000 | 33.85% |
Common | Cheung Sing (1) 16/F Honest Motors Building, 9-11 Leighton Road, Causeway Bay, Hong Kong | 350,000 | 2.36% |
Common | Chan Tak Hing (1) Rm C, Flat L, 8/F., Malahon Apartments, 501-515 Jeffe Road, Wanchai, Hong Kong | 35,000 | 0.24% |
Common | Gu Yao Room 3003, Building Six, Hong Qiao Road, Shanghai, China | 2,291,100 | 15.44% |
Common | Fang Huaying Rm 402, Building 14, 3329 Hongmei Rd, Minhang District, Shanghai, China | 1,050,000 | 7.08% |
Common | Vivian Choi Flat B, 17/F., Tower 8, Pacific Palisades Phase 1, 1 Braemar Hill Road, North Point, Hong Kong | 2,938,492 | 19.8% |
Common | All Directors and Executive Officers as a Group ( 5 in number) | 5,408,000 | 36.45% |
(1)
The person listed was an officer, a director, or both, of the Company as of March 31, 2014.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Certain conflicts of interest exist and will continue to exist between the Company and its officers and directors due to the fact that they have other employment or business interests to which they devote substantial attention. Ultimately, our shareholders must rely on the fiduciary responsibility owed to them by the Companys officers and directors.
The Company had amount payable to shareholder of $509,519 and $442,722 as of March 31, 2014 and 2013 respectively. These amounts are payable to Cheung Ming, who is the President and a Director of the Company, and who is holder of 5,023,000 shares, or approximately 33.85% of the Companys issued and outstanding common stock. The amounts due to shareholder mainly represent amounts advanced by Cheung Ming for payment of legal and professional fees on the Companys behalf. The payable is unsecured, non-interest bearing and has no fixed repayment term. On May 26, 2014, subsequent to the end of the fiscal year, the Board of Directors approved payment in full of the outstanding balance of this amount due and payable to its shareholder as of March 31, 2014, through issuance to Cheung Ming of 5,095,190 shares of the Companys common stock at a price of $0.10 per share. The issuance price of $0.10 per share was established by mutual agreement of Cheung Ming and the Companys Board of Directors, and does not bear any relationship to the assets, book value or net worth of the Company.
The law firm of Frascona, Joiner, Goodman and Greenstein, P.C., has billed the Company $25,000 and $26,191 for legal fees for the fiscal year ended March 31, 2014, and March 31, 2013, respectively. Gary Joiner, who is a shareholder of the Company, is also a shareholder, officer and director, of Frascona, Joiner, Goodman and Greenstein, P.C., a law firm which provides legal services to the Company.
There can be no assurance that members of management will resolve all conflicts of interest in our favor. The officers and directors are accountable to us and our shareholders as fiduciaries. Failure by them to conduct our business in a manner which is in our best interests may create liability for them. The area of fiduciary responsibility is a rapidly developing area of law, and persons who have questions concerning the duties of the officers and directors to us should consult their counsel.
Director Independence
The NASDAQ Stock Market has instituted director independence guidelines that have been adopted by the Securities & Exchange Commission. These guidelines provide that a director is deemed independent only if the board of directors affirmatively determines that the director has no relationship with the company which, in the boards opinion, would interfere with the directors exercise of independent judgment in carrying out his or her responsibilities. Significant stock ownership will not, by itself, preclude a board finding of independence.
For NASDAQ Stock Market listed companies, the director independence rules list six types of disqualifying relationships that preclude an independence filing. The Companys board of directors may not find independent
22
a director who:
1.
is an employee of the company or any parent or subsidiary of the company;
2.
accepts, or who has a family member who accepts, more than $60,000 per year in payments from the company or any parent or subsidiary of the company other than (a) payments from board or committee services; (b) payments arising solely from investments in the companys securities; (c) compensation paid to a family member who is a non-executive employee of the company (d) benefits under a tax qualified retirement plan or non-discretionary compensation; or (e) loans to directors and executive officers permitted under Section 13(k) of the Exchange Act;
3.
is a family member of an individual who is employed as an executive officer by the company or any parent or subsidiary of the company;
4.
is, or has a family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services that exceed 5% of the recipients consolidated gross revenues for that year, or $200,000, whichever is more, other than (a) payments arising solely from investments in the companys securities or (b) payments under non-discretionary charitable contribution matching programs;
5.
is employed, or who has a family member who is employed, as an executive officer of another company whose compensation committee includes any executive officer of the listed company; or
6.
is, or has a family member who is, a current partner of the companys outside auditor, or was a partner or employee of the companys outside auditor who worked on the companys audit.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
(1)
The aggregate fees billed by UHY Vocation HK CPA Limited for audit of the Companys financial statements for the fiscal year ended March 31, 2014 were $26,000.
Audit Related Fees
(2)
UHY Vocation HK CPA Limited billed the Company $30,000 for assurance and related services that were related to its audit or review of the Companys financial statements during the fiscal year ended March 31, 2014.
Tax Fees
(3)
The aggregate fees billed by UHY Vocation HK CPA Limited for tax compliance, advice and planning were $Nil for the fiscal year ended March 31, 2014.
All Other Fees
23
(4)
The aggregate fees billed by UHY Vocation HK CPA Limited for services other than the foregoing were $Nil during the fiscal year ended March 31, 2014.
Audit Committee Pre-approval Policies and Procedures
(5)
Studio II Brands, Inc., a blind pool reporting company which is not yet publicly traded, does not have an audit committee per se. The current board of directors functions as the audit committee.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Audited Financial Statements for Fiscal Year Ended March 31, 2014.
| 31.1 | Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
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| 31.2 | Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
| 32.1 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
| 32.2 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
| 101 | SCH XBRL Schema Document. |
|
|
|
| 101 | SCH XBRL Instance Document. |
|
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| 101 | CAL XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101 | LAB XBRL Taxonomy Extension Label Linkbase Document. |
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| 101 | PRE XBRL Taxonomy Extension Presentation Linkbase Document. |
SIGNATURE PAGE TO FOLLOW
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /S/ Cheung Ming
Cheung Ming, President, Principal Executive Officer
Date: June 30, 2014
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
By: /S/ Cheung Ming
Cheung Ming, President, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director
Date: June 30, 2014
By: /S/ Cheung Sing
Cheung Sing, Director
Date: June 30, 2014
By: /S/ Chan Tak Hing
Chan Tak Hing, Director
Date: June 30, 2014
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