Attached files
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EX-31 - STUDIO II BRANDS INC | studioiibrands_exh311.htm |
EX-32 - STUDIO II BRANDS INC | studioiibrands_exh322.htm |
EX-32 - STUDIO II BRANDS INC | studioiibrands_exh321.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, 2015
[] 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 July 14, 2015, the Issuer had 22,233,208 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 (HLL), a BVI corporation, which was incorporated in December, 2009. As a result of completion of this share exchange transaction, HLL became our wholly-owned subsidiary. In addition, as more fully described below, Legend Sun Limited (Legend Sun), a Hong Kong corporation became our operating subsidiary, when HLL acquired in February, 2010. In January 2010, HHL acquired another subsidiary, Kong Star Limited, a Hong Kong corporation (Kong Star) which with no business activity.
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 HLL all of the issued and outstanding shares of Sino Wish Limited, a Hong Kong corporation (Sino Wish), which was incorporated in November, 2009 and Sino Wish had been 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.
On June 30, 2014, the Company completed the acquisition of Golden Spring Limited (Golden Spring) through HLL, a Hong Kong corporation, by purchasing all of the issued and outstanding shares of Golden Spring. Prior to its acquisition by the Registrant, Golden Spring was a subfranchisee of HLL, operating a Caffe Kenon restaurant in Hong Kong under the terms of a subfranchise agreement since September, 2013. The operation of the Caffé Kenon coffee shop owned by Golden Spring was similar to the operation of the Caffé Kenon coffee shop currently operated by HLL in Hong Kong. As a result of the acquisition of Golden Spring by HLL, the subfranchise agreement between HLL and Golden Spring was terminated. Golden Spring now continues its operation of Caffe Kenon restaurant as a company-owned store.
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Corporate Structure
The Chart below depicts the Companys corporate structure as of March 31, 2015. As depicted below, Studio II Brands owns 100% of Hippo Lace Limited and Hippo Lace Limited owns 100% of Legend Sun Limited and Sino Wish Limited, Golden Spring Limited and Kong Star Limited.
Current Operations
Through the Companys operating subsidiaries, Sino Wish and Golden Spring, the Company is in the business of operating coffee shops under the trade name Caffe Kenon. The Company currently owns and operates two Caffé Kenon coffee shops located in Hong Kong. These shops are operated under the terms of a franchise agreement between HLL and Sizegenic Holdings Limited (Sizegenic), a British Virgin Islands corporation. 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 on May 28, 2014.
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 April 1, 2012, Sizegenic entered into franchise agreements with HLL pursuant to which HLL was granted the right to operate Caffe Kenon restaurant. As of March 31, 2015, the company operate two Caffe Kenon restaurants at shop no. 208 and 209 of the 2nd floor of the Tai Yau Plaza shopping center in Wanchai, Hong Kong and Flat A, Ground Floor, Tak Cheong Building, No.44 Yiu Wa street, Nos. 28 & 29 Canal Road Street, Hong Kong.
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At the two restaurants, Italian-style espresso drinks using Kenon brand coffee imported from Italy are served. 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 railway 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 30 to 80 guests.
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 owned by the Company and operated as franchisees 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 additional working capital funding will be available, or will be available on terms which are acceptable to the Company.
Continuously, 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 venture to operate restaurants with potential business partners.
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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. 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 Sino Wish and Golden Spring at monthly rental rate of $322 (equivalent toHK$2,500) per each Company 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 April 1, 2014, the Company leases shop located at ground floor, Nam Hing Fong, 38 Yiu Wa Street, Causeway Bay, Hong Kong, and another one at shop no. 208 and 209 of the second 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 five years, commencing June 1, 2009, at a monthly rental rate of $6,667 (equivalent toHK$52,000) for the first three years and $8,333 (equivalent toHK$65,000) for the remaining two years. The Company exercised an option to extend the term for an additional two 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 $500(equivalent to HK$3,897) and quarterly government fees of $1,615 (equivalent to HK$12,600) 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 $44,278 (equivalent toHK$344,485) representing five 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, and was not renewed by the Company. The Caffé 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 three years, commencing March 1, 2010, at a monthly base rental rate of $7,494 (equivalent toHK$58,120) for the first three years, and included an option to extend the term for an additional three 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 three years and the parties agreed on a monthly base rental rate of $11,241 (equivalent to HK$87,180) 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, monthly service charges of $1,498 (equivalent to HK$11,624) and quarterly government fee of $883 (equivalent toHK$6,900). At the time of execution of the option on the lease, the Company paid a refundable security deposit of $78,231 (equivalent toHK$606,624) representing six months base rent, service charge and government fee. The lease may be terminated by the landlord in the event of a material default by the tenant as a result of failure to observe and perform its obligations of the lease.
On June 30, 2014, the Company acquired Golden Spring which was operating a Caffé Kenon restaurant. The restaurant was located at Flat A, Ground Floor, Tak Cheong Building, No.44 Yiu Wa Street, Nos. 28 & 29 Canal Road Street, HK. The lease for these premises was for a term of three years, commencing September 16, 2013, at a monthly rental rate of $8,768 (equivalent to HK$68,000) for the first two years and $9,026
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(equivalent toHK$70,000) for the remaining one year. In addition to monthly rent, the Company is also obligated to pay quarterly government fees of $1,077(equivalent to HK$8,355) 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 $26,710 (equivalent to HK$204,000) representing three months rent. 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.
As of March 31, 2015, the Company owns and operates two Caffé Kenon coffee shops located in Hong Kong.
Franchise Agreements
Pursuant to Franchise Agreements dated February 10, 2010 and April 1, 2012 between Sizegenic and HLL, it granted the Companys operating subsidiaries, Legend Sun and Sino Wish, with the right to operate 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 years, 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 initial franchise fee for the first year was about $5,157 (equivalent to HK$40,000) and each remaining year of the term would charge HLL a fee of $10,319 (equivalent to HK$80,000). There was also payment of a monthly management fee of 10% of the franchisees net income. On February 10, 2015, the Franchise Agreement has been renewed. 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, as well as other associated intellectual property used 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 $12,850 (equivalent to HK$100,000), 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
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subfranchise agreement between HLL and Golden Spring Limited was terminated. 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 subfranchisee.
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 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 our supplies and raw materials.
Employees
The Company currently has a total of approximately 17 full-time and 12 part time employees, including 4 management and administration personnel, and 25 other employees who work in the restaurants. The restaurant employees include chefs, baristas who make espresso coffee drinks, and waiters/waiteresses.
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 was expired February 10, 2013 and had 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.
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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, Sino Wish and Golden Spring obtained Business Registration Certificate from the Inland Revenue Department of Hong Kong Special Adminstrative Region (HKSAR) on November 26, 2009 and September 2, 2013, respectively. Sino Wish and Golden Spring are required to renew the Certificate with a fee and to file annual profits tax return supported by audited financial statements on annual basis.
The restaurants obtained 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.
Sino Wish and Golden Spring 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.
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 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)
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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, 2015 there were 22,233,208 shares of common stock issued and outstanding and approximately 80 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, 2015 or 2014. 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.
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
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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, Sino Wish and Golden Spring. 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, 2015. 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, 2015 and March 31, 2014.
Revenue
Revenue for both years ended March 31, 2015 and 2014 mainly consists of catering services income from company-owned restaurants in Hong Kong.
The decrease of $6,112, or approximately 1% of total revenue dropping from $785,746 in 2014 as compared with $779,734 in 2015, was mainly due to the decrease in subfranchise income of $6,087 for the year ended 2015 compared with $25,666 in 2014 even though the revenue from catering services increased by $13,467 in 2015.
Operating costs and expenses
Operating costs and expenses for the year ended March 31, 2015 and 2014 consist of the following:
| Twelve-Months Ended | ||||||||
| 2015 |
| 2014 |
| 2015 compared to 2014 | ||||
|
|
|
|
|
| ||||
Food and supplies Staff costs | $ | 219,884 189,850 |
| $ | 172,048 238,431 |
| $
| 17,802 (18,547) | |
Rent, government fee, management fee | 331,573 |
| 280,705 |
| 50,868 | ||||
Electricity, gas and utilities | 36,713 |
| 42,491 |
| (5,778) | ||||
Depreciation | 27,706 |
| 32,724 |
| (5,018) | ||||
Legal and professional fee | 109,952 |
| 85,170 |
| 24,782 | ||||
Fixed assets written off | 30,254 |
| - |
| 30,254 | ||||
Impairment on goodwill | 54,244 |
| - |
| 54,244 | ||||
Others | 110,216 |
| 95,267 |
| 14,949 | ||||
Other operating (income)/expense, net | (7,568) |
| (5,601) |
| (1,967) | ||||
|
|
|
|
|
| ||||
| $ | 1,102,824 |
| $ | 941,235 |
| $ | 161,589 |
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Cost of revenue represented cost of food and beverage materials and products for catering services sold by company-owned restaurants. The increase in cost of revenue of $17,802 for the year ended March 31, 2015, as compared to 2014 was in line with the increase of catering service income and inflation in price of food and supplies
The increase of operating costs and expenses for the year ended March 31, 2015 as compared to 2014, which represented an increase of $161,589 or approximately 17%, was mainly due to the impairment on goodwill and fixed assets written off recorded in 2015.
Other income and expenses
Other income and expenses for the year ended March 31, 2015 and 2014 mainly represented the tips from customers of Company-owned restaurants. There was no significant fluctuation for both years 2015 and 2014.
Net loss from operations
Net loss for the year ended March 31, 2015 amounting to $238,592 excluded impairment on goodwill and write off of fixed assets. While the Companys restaurants could 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 had made the Company suffered from loss in both years of 2015 and 2014. The result of loss and its nature of business remained similar as last year.
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, 2015 and 2014 were $124,239 and $509,519, 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 Companys operations had been mainly supported by the interest free advance from its major stockholder who did not require immediate repayment of the advance.
The 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 and its dependency on continuing funding from its stockholders, raise substantial double about its ability to continue as a going concern.
As of March 31, 2015 and 2014, there were no material commitments for capital expenditures for business operations.
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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, 2015 and 2014, the Company does not have any off-balance sheet arrangements.
SUBSEQUENT EVENTS
There was no significant subsequent event.
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, 2015 and 2014 begins on page F-1 of this annual report.
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STUDIO II BRANDS, INC. AND SUBSIDIARIES | ||
AUDITED FINANCIAL STATEMENTS | ||
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
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| Page | |
Report of Independent Registered Public Accounting Firm | F-1 | |
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Consolidated Balance Sheets as of March 31, 2015 and 2014 | F-2 | |
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Consolidated Statements of Operations |
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| for the years ended March 31, 2015 and 2014 | F-3 |
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Consolidated Statement of Stockholders Equity |
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| for the years ended March 31, 2015 and 2014 | F-4 |
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Consolidated Statements of Cash Flows |
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| for the years ended March 31, 2015 and 2014 | F5-F6 |
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Notes to the Consolidated Financial Statements | F7-F19 |
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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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, 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, 2015, 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,
15
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2015 |
| March 31, 2014 | |||
|
| |||||
ASSETS |
| |||||
Current assets |
| |||||
Cash | $ | 18,696 |
| $ | 19,837 | |
Other receivables | - |
| 7,624 | |||
Inventories | 5,248 |
| 4,706 | |||
|
|
|
| |||
Total current assets | 23,944 |
| 32,167 | |||
|
|
|
| |||
|
|
|
| |||
Property and equipment, net | 78,120 |
| 57,691 | |||
Security deposits | 116,904 |
| 135,769 | |||
Goodwill | 387,549 |
| 311,291 | |||
Tax recoverable | - |
| 1,129 | |||
|
|
|
| |||
Total assets | $ | 606,517 |
| $ | 538,047 | |
|
|
|
| |||
LIABILITIES AND EQUITY |
|
|
| |||
Current liabilities |
|
|
| |||
Accounts payable and accrued expenses | $ | 183,318 |
| $ | 151,149 | |
Bank overdraft | 5,152 |
| - | |||
|
|
|
| |||
Total current liabilities | 188,470 |
| 151,149 | |||
|
|
|
| |||
Payable to stockholder | 124,239 |
| 509,519 | |||
|
|
|
| |||
Total liabilities | 312,709 |
| 660,668 | |||
|
|
|
| |||
|
|
|
| |||
COMMITMENTS AND CONTINGENCIES |
|
|
| |||
EQUITY |
|
|
| |||
Common stock, 100,000,000 shares authorized with par value $0.001; 22,233,208 shares issued and outstanding as of March 31, 2015 and 14,838,018 as of March 31, 2014 |
22,233 |
| 14,838 | |||
Additional paid-in capital | 1,179,059 |
| 446,935 | |||
Accumulated deficit | (907,484) |
| (584,394) | |||
|
|
|
| |||
Total equity /(deficit) | 293,808 |
| (122,621) | |||
|
|
|
| |||
TOTAL LIABILITIES AND EQUITY | $ | 606,517 |
| $ | 538,047 | |
|
|
See accompanying notes to consolidated financial statements
16
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
| Year ended March 31, 2015 |
| Year ended March 31, 2014 | ||
|
|
|
|
|
| ||
Revenue |
|
|
|
|
| ||
Food and beverage income |
|
| $ | 773,647 |
| $ | 760,180 |
Franchise and management fee income |
|
| 6,087 |
| 25,666 | ||
|
|
| 779,734 |
| 785,846 | ||
Operating costs and expenses |
|
|
|
|
| ||
Food and supplies |
|
| 189,850 |
| 172,048 | ||
Payroll and employee benefits |
|
| 219,884 |
| 238,431 | ||
Rental expenses |
|
| 273,535 |
| 280,705 | ||
Selling, general and administrative expenses |
|
| 342,625 |
| 255,652 | ||
Fixed assets written off |
|
| 30,254 |
| - | ||
Impairment on goodwill |
|
| 54,244 |
| - | ||
Other operating (income)/expense, net |
|
| (7,568) |
| (5,601) | ||
|
|
| 1,102,824 |
| 941,235 | ||
|
|
|
|
|
| ||
Net loss before income taxes |
|
| (323,090) |
| (155,389) | ||
Income tax expenses |
|
| - |
| - | ||
|
|
|
|
|
| ||
Net loss |
|
| $ | (323,090) |
| $ | (155,389) |
|
|
|
|
|
| ||
|
|
|
| ||||
Basic and fully diluted loss per common share |
|
| $ | (0.02) |
| $ | (0.01) |
|
|
|
|
|
| ||
Weighted average shares outstanding |
|
| 19,619,566 |
| 14,838,018 |
See accompanying notes to consolidated financial statements
17
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED MARCH 31, 2015 AND 2014
| Common Stock, Par value of $0.001 | Additional | Accumulated | Total Equity | ||||||||||
| Number |
| Amount | paid-in capital |
| Deficit |
| (deficit) | ||||||
Balance as of April 1, 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) | |
Issue of shares upon conversion of stockholders loan |
5,095,190 |
|
5,095 |
|
504,424 |
|
- |
|
509,519 | |||||
|
|
|
|
|
|
|
|
|
| |||||
Issue of shares for acquisition of a subsidiary |
2,300,000 |
|
2,300 |
|
227,700 |
|
- |
|
230,000 | |||||
|
|
|
|
|
|
|
|
|
| |||||
Net loss for the year | - |
| - |
| - |
| (323,090) |
| (323,090) | |||||
|
|
|
|
|
|
|
|
|
| |||||
Balance as of March 31, 2015 |
22,233,208 |
|
$ |
22,233 |
|
$ |
1,179,059 |
|
$ |
(907,484) |
|
$ |
(293,808) |
See accompanying notes to consolidated financial statements
18
STUDIO II BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended March 31, 2015 |
| Year ended March 31, 2014 | |||
Cash flows from operating activities | ||||||
Net loss | $ | (323,090) |
| $ | (155,389) | |
Adjustments to reconcile net loss to net cash (used in) operating activities: |
|
|
| |||
Depreciation | 27,706 |
| 32,724 | |||
Fixed assets written off | 30,254 |
| - | |||
Impairment of goodwill | 54,244 |
| - | |||
Changes in operating assets and liabilities: |
|
|
| |||
Other receivables | 7,626 |
| (7,624) | |||
Inventories | 2,051 |
| 1,304 | |||
Due from related parties | - |
| 52,120 | |||
Security deposit | 49,732 |
| (543) | |||
Accounts payable and accrued expenses | 17,237 |
| 4,121 | |||
Income tax payable | 1,130 |
| 3,622 | |||
Payable to stockholder | 124,155 |
| 66,797 | |||
Net cash used in operating activities | (8,955) |
| (2,868) | |||
Cash flow from investing activities |
|
|
| |||
Cash paid for acquisition of fixed assets | (1,675) |
| - | |||
Cash acquired from acquisition of a subsidiary | 4,077 |
| - | |||
Net cash generated from investing activities | 2,402 |
| - | |||
|
|
|
| |||
Effect of exchange rate | 260 |
| - | |||
|
|
|
| |||
Net change in cash |
(6,293) |
|
(2,868) | |||
Cash |
|
|
| |||
Beginning of year | 19,837 |
| 22,705 | |||
End of year | 13,544 |
| 19,837 | |||
|
|
|
| |||
Analysis of the balances of cash and cash equivalents |
|
|
| |||
Cash | 18,696 |
| 19,837 | |||
Bank overdraft | (5,152) |
| - | |||
| 13,544 |
| 19,837 | |||
Supplemental disclosures of cash flow information: |
|
|
| |||
Cash paid for interest | $ | - |
| $ | - | |
Cash paid for income taxes | $ | - |
| $ | - | |
Non-cash investing and financing | $ | 230,000 |
| $ | - |
See accompanying notes to consolidated financial statements
19
Supplemental cash flow information regarding the Companys acquisitions in 2014 is as follows:
(a) Issuance of common shares for acquisition of a subsidiary:
|
|
| 2014 | |
Fair value of assets acquired |
|
| $ | 110,190 |
Less fair value of liabilities assumed |
|
| (14,895) | |
|
|
|
| |
Net assets acquired |
|
| 95,295 | |
Less shares issued |
|
| (230,000) | |
Add cash acquired |
|
| 4,077 | |
|
|
|
| |
Value of excess of purchase price allocated to goodwill |
|
| $ | 130,628 |
|
|
|
| |
(b) Conversion of stockholders loan into common shares |
|
| $ | 509,519 |
20
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. In January 2010, HHL acquired another subsidiary, Kong Star Limited, a Hong Kong corporation (Kong Star) which had no business activity.
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.
On June 30, 2014, through HLL, the Company completed the acquisition of Golden Spring Limited (Golden Spring), a Hong Kong corporation, by purchasing all of the issued and outstanding shares of Golden Spring. Prior to its acquisition, Golden Spring was a subfranchisee of HLL, operating a Caffe Kenon restaurant in Hong Kong under the terms of a subfranchise agreement dated September, 2013. The operations of the Caffé Kenon coffee shop owned by Golden Spring are similar to the operations of the Caffé Kenon coffee shop currently operated by HLL in Hong Kong. Both restaurants serve Italian-style espresso drinks using Kenon brand coffee imported from Italy, as well as breakfast, lunch, and dinner with a moderately-priced Italian style standard menu which includes pizza, spaghetti, risotto, salads, sandwiches and desserts. As a result of the acquisition of Golden Spring by HLL, the subfranchise agreement between HLL and Golden Spring was cancelled. Golden Spring now continues its operation of Caffe Kenon restaurant as a company-owned store. The purchase price for the acquisition of Golden Spring was a total of $230,000, which was paid through issuance to the seller of a total of 2,300,000 shares of common stock of the Registrant valued at $0.10 per share. Such shares are restricted securities as defined in Rule 144 under the Securities Act of 1933.
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, 2015 and 2014 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.
21
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 reporting currency is the United States Dollar.
(b)
Principles of consolidation
The audited consolidated financial statements as of March 31, 2015 and 2014 include the Company and its wholly-owned subsidiaries, HLL, Legend Sun, Sino Wish, Golden Spring and Kong Star. 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, 2015 | March 31, 2014 |
|
|
|
Period end HK$:US$ exchange rate | $ 7.7536 | $ 7.7567 |
Average twelve-months ended HK$:US$ exchange rate | $ 7.7551 | $ 7.7586 |
(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, 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.
22
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(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.
In accordance with FASB ASC 350, we perform goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. The impairment test for goodwill uses a two-step approach. Step one compares the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting units goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.
During the year, we performed our annual goodwill impairment test and estimated the fair value of each of our reporting units based on the income approach (also known as the discounted cash flow (DCF) method, which utilizes the present value of cash flows to estimate fair value). As one of our owned restaurants operated by Legend Sun was closed on May 28, 2014, there were no future cash flows for this reporting unit. As a result, there was impairment of goodwill of $54,244 for March 31, 2015 and $Nil for 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, 2015.
As one of our owned restaurants operated by Legend Sun was closed on May 28, 2014, the related fixed assets were disposed of and result in a loss on write off of fixed assets of $30,254 for March 31, 2015.
23
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k)
Accounts payable and accrued expenses consist of the following:
| March 31, 2015 |
| March 31, 2014 | ||
|
|
|
| ||
Accounts payable | $ | 24,454 |
| $ | 27,969 |
Payroll and rental expenses | 78,886 |
| 80,107 | ||
Other operating expenses | 79,978 |
| 43,073 | ||
|
|
|
| ||
| $ | 183,318 |
| $ | 151,149 |
|
|
|
|
(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 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.
The carrying values of cash, accounts and other receivables, accounts payable and accrued expenses, and short-term borrowings from related party were 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, 2015.
(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 ASC 740 which prescribes 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.
24
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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)
Collection 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 Caffé 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's vesting scales.
(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, 2015, the Company's management has confirmed that there was no such proceeding or claims. In the opinion of management, there was no matter which will have a material adverse effect on the Company's financial position, liquidity or results of operations.
25
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(s)
Recent accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Companys consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected to have a material impact on the Companys consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements
NOTE 4 BUSINESS ACQUISITION
On June 30, 2014, through HLL, the Company completed the acquisition of Golden Spring Limited (Golden Spring), a Hong Kong corporation, by purchasing all of the issued and outstanding shares of Golden Spring. Prior to its acquisition by the Registrant, Golden Spring was a subfranchisee of HLL, operating a Caffé Kenon restaurant in Hong Kong under the terms of a subfranchise agreement dated September, 2013. The operations of the Caffé Kenon coffee shop owned by Golden Spring are similar to the operations of the Caffé Kenon coffee shop currently operated by HLL in Hong Kong. Both restaurants serve Italian-style espresso drinks using Kenon brand coffee imported from Italy, as well as breakfast, lunch, and dinner with a moderately-priced Italian style standard menu which includes pizza, spaghetti, risotto, salads, sandwiches and desserts. As a result of the acquisition of Golden Spring by HLL, the subfranchise agreement between HLL and Golden Spring was cancelled. Golden Spring now continues its operation of Caffé Kenon restaurant as a company-owned store.
The purchase price for the acquisition of Golden Spring was a total of $230,000, which was paid through issuance to the seller of a total of 2,300,000 shares of common stock of the Registrant valued at $0.10 per share. Such shares are restricted securities as defined in Rule 144 under the Securities Act of 1933. As a result of the issuance of common stock under the Stock Purchase Agreement, the Company has a total of 22,233,208 shares of its common stock issued and outstanding, of which 19,933,208 shares, or approximately 89.65%, are owned by previously existing shareholders of the Company, with the balance of 2,300,000 shares, or approximately 10.34%, are owned by shareholder of Golden Spring.
26
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 BUSINESS ACQUISITION (Continued)
The fair values of the assets acquired and liabilities assumed at the date of acquisition as determined in accordance with ASC 805, and the purchase price allocation at the date of acquisition, were as follows:
Consideration: |
|
|
|
|
|
| |||
Equity instruments (2,300,000 common stock of the Company) |
| $ | 230,000 | ||||||
Cash acquired |
|
|
|
|
| (4,077) | |||
|
|
| |||||||
Consideration, net of cash acquired |
| $ | 225,923 | ||||||
|
|
|
|
|
|
|
|
| |
Allocated to: |
|
|
|
|
|
| |||
| Inventory |
|
|
|
| $ | (2,594) | ||
| Security deposit |
|
|
|
| (30,838) | |||
| Property and equipment |
|
|
|
| (76,757) | |||
| Accounts payable and accrued expenses |
|
|
|
| 14,894 | |||
|
|
|
|
|
|
|
|
| |
|
| Net tangible assets |
|
|
|
|
| $ | (95,295) |
|
|
|
|
|
|
|
|
|
Value of excess of purchase price over net liabilities |
|
| |||||||
| Acquired allocated to: |
|
|
|
|
| |||
|
| Goodwill |
|
|
|
|
| $ | 130,628 |
|
|
|
|
|
|
|
|
|
NOTE 5 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, 2015 and 2014 are summarized as follows:
| March 31, 2015 |
| March 31, 2014 | ||
|
|
|
| ||
Furniture & equipment | $ | 77,393 |
| $ | 76,644 |
Leasehold improvement | 84,989 |
| 113,150 | ||
Computer equipment | - |
| 14,703 | ||
|
|
|
| ||
Total | 162,382 |
| 204,497 | ||
Accumulated depreciation and amortization | (84,262) |
| (146,806) | ||
|
|
|
| ||
Balance as at year end | $ | 78,120 |
| $ | 57,691 |
Depreciation and amortization expense for the years ended March 31, 2015 and 2014 were $27,706 and $32,724, respectively.
Write off of fixed assets of $30,254 for the year ended March 31, 2015, due to the shop operated by Legend Sun closed on May 28, 2014.
27
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 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, 2015 and 2014 are summarized as follows:
| March 31, 2015 |
| March 31, 2014 | |||
|
|
|
| |||
Rental and management fee security deposit | $ | 104,781 |
| $ | 120,839 | |
Electricity, water and gas deposit | 11,246 |
| 11,087 | |||
Food supplies deposit | 258 |
| - | |||
Other deposit | 619 |
| 3,843 | |||
|
|
|
| |||
| $ | 116,904 |
| $ | 135,769 | |
|
|
|
|
NOTE 7 OPERATING COST AND EXPENSES
Operating cost and expenses consist of the following for the years ended March 31, 2015 and 2014:
|
| March 31, |
| March 31, | ||
|
| 2015 |
| 2014 | ||
|
|
|
|
| ||
Food and supplies Staff costs |
| $ | 189,850 219,884 |
| $ | 172,048 238,431 |
Property rent, rate and management fee
|
| 331,573 |
| 280,705 | ||
Electricity and utilities |
| 36,713 |
| 42,491 | ||
Depreciation |
| 27,706 |
| 32,724 | ||
Professional and audit fee |
| 109,952 |
| 85,170 | ||
Fixed assets written off |
| 30,254 |
| - | ||
Impairment on goodwill |
| 54,244 |
| - | ||
Others |
| 110,216 |
| 95,267 | ||
Other operating (income)/expense, net |
| (7,568) |
| (5,601) | ||
|
|
|
|
| ||
Total |
| $ | 1,102,824 |
| $ | 941,235 |
|
|
|
|
|
NOTE 8 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, franchise agreement is entered in February 2010 and renewed in April 2012, in which the Company is granted the right to operate café bistro using the brand name Caffé Kenon for a term of 3 years. Franchise fee expenses on the use of the license of the brand name and trademark Caffé 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 Caffé 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.
28
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 FRANCHISE ARRANGEMENTS (Continued)
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.
As at March 31, 2015 no Franchise fees owe to Sizegenic.
The franchise annual fee paid to Sizegenic for the Company-owned restaurants for the year 2015 was $10,315.
NOTE 9 SEGMENT INFORMATION
The Company has two reportable segments that include (1) ownership of Caffé Kenon coffee shop restaurants operated in Hong Kong under the terms of a franchise agreement, and (2) granting of a subfranchise to operate one Caffé Kenon coffee shop restaurant in Hong Kong. The Company reports only one geographical area for both 2015 and 2014. 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, 2015 and 2014.
29
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended March 31, 2015
| Franchise |
| Subfranchise |
| Corporate |
| Total | ||||
|
|
|
|
|
|
|
| ||||
Revenue | $ | 773,647 |
| $ | 6,087 |
| $ | - |
| $ | 779,734 |
|
|
|
|
|
|
|
| ||||
Depreciation and amortization | (27,706) |
| - |
| - |
| (27,706) | ||||
|
|
|
|
|
|
|
| ||||
Impairment of goodwill and fixed assets written off | (84,498) |
| - |
| - |
| (84,498) | ||||
|
|
|
|
|
|
|
| ||||
Operating costs and expenses excluding depreciation and amortization | (839,072) |
| - |
| (159,116) |
| (998,188) | ||||
|
|
|
|
|
|
|
| ||||
Operating income/(loss) | (177,629) |
| 6,087 |
| (159,116) |
| (330,658) | ||||
|
|
|
|
|
|
|
| ||||
Other income | 7,568 |
| - |
| - |
| 7,568 | ||||
|
|
|
|
|
|
|
| ||||
Total other income (net) | 7,568 |
| - |
| - |
| 7,568 | ||||
|
|
|
|
|
|
|
| ||||
Income tax expenses | - |
| - |
| - |
| - | ||||
|
|
|
|
|
|
|
| ||||
Net (loss)/income after tax | $ | (170,061) |
| $ | 6,087 |
| $ | (159,116) |
| $ | (323,090) |
|
|
|
|
|
|
|
| ||||
Total assets, excluding goodwill | $ | 213,067 |
| $ | - |
| $ | 5,901 |
| $ | 218,968 |
Goodwill | $ | - |
| $ | - |
| $ | - |
| $ | - |
Capital expenditure | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
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 | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
30
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 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, Sino Wish and Golden Spring, 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, 2015 |
| Year ended March 31, 2014 | ||
|
|
|
| ||
Loss before tax | $ | (323,090) |
| $ | (155,389) |
HK income tax rate | 16.5% |
| 16.5% | ||
Expected income tax credit calculated at HK income tax rate | (53,309) |
| (25,639) | ||
Corporate expenses not deductible for tax purposes | 38,961 | 14,787 | |||
Temporary difference not recognized |
|
|
| ||
Tax losses carryforward | 14,348 |
| 10,852 | ||
Less: valuation allowance | (14,348) |
| (10,852) | ||
|
|
|
| ||
Total | $ | - |
| $ | - |
|
|
|
|
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%. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets are as follows:
| March 31, 2015 |
| March 31, 2014 | ||
Deferred tax (asset)/ liability |
|
|
| ||
Tax losses | $ | (23,443) |
| $ | (15,956) |
Difference between book and tax depreciation | $ | 2,821 |
| $ | 8,259 |
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, 2015 was primarily related to increases in net operating loss carryovers, which the Company does not expect to realize. For the year ended December 31, 2015 and 2014, valuation allowance amounted to $20,622 and $7,697 respectively. Regarding the loss set-off treatment in Hong Kong, it allows loss to be carried forward without time limit to offset profits in future years.
31
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 OPERATING LEASE COMMITMENTS
For Sino Wishs operating restaurant, the Company entered into a rental agreement on March 1, 2010 to lease the premise located at shop no. 208 and 209 of Tai Yau Plaza, Wanchai, Hong Kong for a term of 6 years at a monthly rental rate of $11,243.
For Golden Spring, the Company entered into rental agreement on September 15, 2013 to lease premise for operation located at Flat A, Ground Floor, Tak Cheong Building, No.44 Yiu Wa street, Nos. 28 & 29 Canal Road Street, HK. The lease of premises was for a term of three years at a monthly rental rate of $8,770 for the first two years and $9,028 for the remaining one year.
As of March 31, 2015, the total future minimum lease payments under operating leases in respect of leased premises are payable as follows:
Year ended March 31,
2016 | $ | 230,470 |
2017 | 54,168 | |
|
| |
Total | $ | 284,638 |
|
|
NOTE 12 RELATED PARTY TRANSACTIONS
Balance with related party | March 31, 2015 |
| March 31, 2014 | ||
Payable to stockholders: |
|
|
| ||
Cheung Ming, stockholder | $ | 124,239 |
| $ | 509,519 |
|
|
|
|
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.
NOTE 13 CERTAIN RISK AND CONCENTRATION
Credit risk
As of March 31, 2015 and March 31, 2014, 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 14 FIXED ASSETS WRITTEN OFF
Write off of fixed assets of $30,254 for the year ended March 31, 2015 associated with the closed shop operated by Legend Sun on May 28, 2014,
32
STUDIO II BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 IMPAIRMENT ON GOODWILL
During the year, one of the restaurant operated by Legend Sun was closed on May 28, 2014, there were no future cash flows for this reporting unit, its undiscounted cash flow would be zero which indicates that goodwill impairment charge of $54,244 existed.
For the two restaurants operated by Sino Wish and Golden Spring, the Company performed annual goodwill impairment test and estimated the fair value of each of restaurants based on the income approach. Under the income approach, the fair value calculations based on the estimated future cash flows.
As a result, the fair value of the two restaurants exceeds its carrying value, goodwill is not impaired.
33
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, 2015 and 2014 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.
34
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, 2015 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, 2015, 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.
35
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
As of March 31, 2015, the directors and executive officers serving the Company were as follows:
Name | Age | Position |
Cheung Ming | 55 | President, Chief Financial Officer and Chairman |
Cheung Sing | 52 | Director and Vice Chairman |
Chan Tak Hing | 64 | 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 55 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 28 years of experience in the area of retail business in China, Hong Kong and Taiwan.
Cheung Sing Mr. Cheung Sing is 52 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,
36
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 64 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 Legend Sun Ltd., and was responsible for the management of kitchen operations. Mr. Chan was a Chef of a Chinese restaurant from mid-year of 1996 to 1999. Mr. Chan has 31 years of experience with 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
(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
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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, 2015, 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, 2015 and 2014. 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
The following table sets forth, as of March 31, 2015, 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.
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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 | 10,118,190 | 45.51% |
Common | Cheung Sing (1) 16/F Honest Motors Building, 9-11 Leighton Road, Causeway Bay, Hong Kong | 350,000 | 1.57% |
Common | Chan Tak Hing (1) Rm C, Flat L, 8/F., Malahon Apartments, 501-515 Jeffe Road, Wanchai, Hong Kong | 35,000 | 0.16% |
Common | Gu Yao Room 3003, Building Six, Hong Qiao Road, Shanghai, China | 2,291,100 | 10.30% |
Common | Vivian Choi Flat B, 17/F., Tower 8, Pacific Palisades Phase 1, 1 Braemar Hill Road, North Point, Hong Kong | 2,350,794 | 10.57% |
Common | All Directors and Executive Officers as a Group ( 3 in number) | 10,503,190 | 47.24% |
(1)
The person listed was an officer, a director, or both, of the Company as of March 31, 2015.
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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 $124,239 and $509,519 as of March 31, 2015 and 2014 respectively. These amounts are payable to Cheung Ming, who is the President and a Director of the Company, and who is holder of 10,118,190 shares, or approximately 45.51% 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.
The law firm of Frascona, Joiner, Goodman and Greenstein, P.C., has billed the Company $27,790 and $25,000 for legal fees for the fiscal years ended March 31, 2015, and March 31, 2014, 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 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;
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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, 2015 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, 2015.
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, 2015.
All Other Fees
(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, 2015.
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.
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PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Audited Financial Statements for Fiscal Year Ended March 31, 2015.
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: July 14, 2015
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: July 14, 2015
By: /S/ Cheung Sing
Cheung Sing, Director
Date: July 14, 2015
By: /S/ Chan Tak Hing
Chan Tak Hing, Director
Date: July 14, 2015
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