Quality Online Education Group Inc. - Quarter Report: 2014 February (Form 10-Q)

adgs_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended February 28, 2014

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

For the transition period from______to ______

Commission file number 001-34274

ADGS ADVISORY, INC.

(Exact name of Registrant as Specified in its Charter)

Delaware		42-1743717
(State or other jurisdiction of incorporation or Identification No.)		(I.R.S. Employer organization)

Units 2611-13A, 26/F 113 Argyle Street, Mongkok Kowloon, Hong Kong, SAR		N/A
(Address of principal executive offices)		(Zip Code)

(852) 2374-0002

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: Common, $.0001 par value per share; 27,690,000 outstanding as of April 15, 2014.

ADGS ADVISORY, INC.

TABLE OF CONTENTS

		Pages
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.		F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		11
Item 4.	Controls and Procedures.		11

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.		12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		12
Item 3.	Default upon Senior Securities.		12
Item 4.	Mine Safety Disclosures.		12
Item 5.	Other Information.		12
Item 6.	Exhibits.		13

SIGNATURES			14

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED FEBRUARY 28, 2014 (UNAUDITED)

CONTENTS	Pages

Condensed Consolidated Balance Sheets as of February 28, 2014 (Unaudited) and August 31, 2013		F-2

Condensed Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2014 and 2013 (Unaudited)		F-3

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended February 28, 2014 and 2013 (Unaudited)		F-4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended February 28, 2014 (Unaudited)		F-5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2014 and 2013 (Unaudited)		F-6

Notes to Condensed Consolidated Financial Statements (Unaudited)		F-7 - F-31

F-1

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN US DOLLARS)

	February 28, 2014			August 31, 2013
	(Unaudited)
Assets

Current assets
Cash	$	1,112,662		$	164,314
Restricted cash		129,465			129,312
Accounts receivable		613,169			564,773
Other receivables		36,821			130,835
Due from a related party		31,050			418,658
Prepaid expenses		-			64,071
Total current assets		1,923,167			1,471,963

Non-current assets
Property and equipment, net		2,053,329			2,088,690
Equity-method investment		363,327			371,096
Intangible assets		850,627			793,840
Goodwill		475,605			-
Utility and other deposits		72,535			40,288
Total non-current assets		3,815,423			3,293,914

Total assets	$	5,738,590		$	4,765,877

Liabilities and stockholders' equity

Current liabilities
Bank overdraft	$	777,837		$	744,077
Assets held under capital lease		12,004			23,775
Accrued liabilities and other payables		197,347			218,242
Deposit received		2,868			-
Common stock issuable		154,872			-
Deferred revenue		144,959			145,114
Income tax payable		262,551			152,357
Consideration payable for acquisition of an intangible asset		38,656			-
Bank loans – current portion		76,531			107,548
Total current liabilities		1,667,625			1,391,113

Non-current liabilities
Assets held under capital lease, net of current portion		88,211			88,306
Deferred revenue, net of current portion		362,398			435,343
Bank loans, net of current portion		2,218,602			2,179,237
Loan from a related party		749,923			750,726
Total non-current liabilities		3,419,134			3,453,612

Total liabilities		5,086,759			4,844,725

Commitments and contingencies

Stockholders’ equity
Preferred stock, $0.0001 par value per share, 2,000,000 authorized, none issued and outstanding		-			-
Common stock, $0.0001 par value per share, 50,000,000 shares authorized, 25,000,000 shares issued and outstanding as of February 28, 2014 and August 31, 2013		2,500			2,500
Additional paid in capital		(2,500	)		(2,500	)
Retained earnings		808,211			67,868
Accumulated other comprehensive loss		(9,091	)		(10,364	)
Total ADGS Advisory, Inc. stockholders’ equity		799,120			57,504

Non-controlling interest		(147,289	)		(136,352	)

Total liabilities and stockholders’ equity	$	5,738,590		$	4,765,877

See notes to condensed consolidated financial statements (unaudited).

F-2

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN US DOLLARS)

	For the Three Months Ended						For the Six Months Ended
	February 28,						February 28,
	2014			2013			2014			2013
				(A)						(A)

Revenue	$	1,441,268		$	1,296,035		$	2,601,278		$	1,905,634

Less: Operating expenses:
Direct cost of revenue		(586,401	)		(603,608	)		(1,131,827	)		(967,039	)
General and administrative expenses		(388,920	)		(275,946	)		(601,734	)		(486,355	)
Total operating expenses		(975,321	)		(879,554	)		(1,733,561	)		(1,453,394	)

Operating income		465,947			416,481			867,717			452,240

Other income		327			-			1,869			-
Other expense:
Interest expenses		(26,913	)		(33,348	)		(55,197	)		(62,775	)

Profit before income taxes		439,361			383,133			814,389			389,465

Less: Income tax expense		(71,631	)		(42,988	)		(84,980	)		(42,988	)

Net profit before allocation of non-controlling interest	$	367,730		$	340,145		$	729,409		$	346,477

Net loss attributable to non-controlling interest		5,160			5,674			10,934			11,345

Net income attributable to common stockholders	$	372,890		$	345,819		$	740,343		$	357,822

Earnings per share
- Basic and diluted	$	0.02		$	6.92		$	0.03		$	7.16

Weighted average common shares outstanding
- Basic and diluted		25,000,000			50,000			25,000,000			50,000

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

See notes to condensed consolidated financial statements (unaudited).

F-3

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

( IN US DOLLARS)

	For the Three Months Ended February 28,						For the Six Months Ended February 28,
	2014			2013			2014		2013
				(A)					(A)

Net income	$	367,730		$	340,145		$	729,409	$	346,477

Other comprehensive income/(loss)
Foreign currency translation adjustment		(4,652	)		(67	)		1,270		(115	)

Comprehensive income		363,078			340,078			730,679		346,362

Add: Comprehensive loss attributable to non-controlling interests		5,160			5,674			10,934		11,345

Comprehensive income attributable to ADGS Advisory, Inc.	$	368,238		$	345,752		$	741,613	$	357,707

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

See notes to condensed consolidated financial statements (unaudited).

F-4

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

(IN US DOLLARS)

	Preferred shares with US$0.0001 Par Value				Common Stock, with US$0.0001 Par Value				Additional paid-			Accumulated Other					Non-
	Number of Shares		Amount		Number of Shares		Amount		in capital Amount			Comprehensive (loss)/income			Retained Earnings		controlling Interest			Total Equity

Balance as of August 31, 2013		-		-		25,000,000	$	2,500	$	(2,500	)	$	(10,364	)	$	67,868	$	(136,352	)	$	(78,848	)
Net profit/(loss)		-		-		-		-		-			-			740,343		(10,934	)		729,409
Foreign translation gain/(loss)		-		-		-		-		-			1,273			-		(3	)		1,270

Balance as of February 28, 2014		-		-		25,000,000	$	2,500	$	(2,500	)	$	(9,091	)	$	808,211	$	(147,289	)	$	651,831

See notes to condensed consolidated financial statements (unaudited).

F-5

ADGS ADVISORY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN US DOLLARS)

	For the Six Months Ended February 28,
	2014			2013
				(A)
Cash flows from operating activities:
Net income	$	740,343		$	357,822
Add: Net loss attributable to non-controlling interest		(10,934	)		(11,345	)
		729,409			346,477
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		53,431			15,243
Amortization of intangible assets		98,003			89,750
Equity in loss of equity-method investment		5,455			5,424

Changes in assets and liabilities:
Account receivable		(49,038	)		(123,304	)
Other receivables		93,945			-
Utility and other deposits		(32,315	)		1,282
Prepaid expenses		64,051			(51,932	)
Deposit received		2,870			-
Accrued liabilities		(20,677	)		125,170
Temporary receipts		-			2,596
Income tax payable		110,440			42,988
Deferred revenue		(72,534	)		-
Net cash provided by operating activities		983,040			453,694

Cash flows from investing activities:
Cash paid for property and equipment		(18,066	)		(133,366	)
Acquisition of an intangible asset, net of cash acquired		(116,104	)		-
Acquisition of a subsidiary, net of cash acquired		(475,605	)		-

Net cash used in investing activities		(609,775	)		(133,366	)

Cash flows from financing activities:
Receipt for shares issuable		154,988			-
Bank fixed deposit		(292	)		(128,215	)
Advances made and expenses paid on behalf of a related party		-			(2,990,814	)
Repayment of advances made and expenses paid on behalf of a related party		387,159			1,342,554
Proceeds from bank loans		86,132			1,223,171
Repayment of bank loans		(75,325	)		(85,672	)
Proceeds from capital lease		-			53,461
Repayment of capital lease		(11,754	)		(17,014	)
Net increase in bank overdraft		34,582			498,511
Net cash provided by/(used in) financing activities		757,490			(104,018	)
Net increase in cash		948,755			216,310

Effect on change of exchange rates on cash		(407	)		5
Cash as of Beginning of period		164,314			129,001

Cash as of End of period	$	1,112,662		$	345,316

Supplemental disclosures of cash flow information:

Cash paid during the period for:
Bank loan interest paid	$	27,840		$	55,944
Capital lease interest paid	$	1,915		$	896
Income tax paid	$	-		$	-

Analysis of the balances of cash and cash equivalents
Cash and bank balance	$	1,112,662		$	345,316

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

See notes to condensed consolidated financial statements (unaudited).

F-6

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

1.	Description of business and organization

Nature of operations

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

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

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

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

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

F-7

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

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

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

Reorganization

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

F-8

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Details of the Company’s subsidiaries and equity-method investment which are included in these consolidated financial statements are as follows:

Subsidiary’s name	Place and date of incorporation	Percentage of ownership by the Company	Principal activities

Almond Kisses Limited “Almond Kisses”	British Virgin Island March 1, 2011	100%	Holding company

ADGS Advisory Limited “ADGS Hong Kong”	Hong Kong, People's Republic of China (“PRC”) April 28, 2011	100% (though Almonds Kisses)	Engage in providing accounting, taxation, company secretarial, and consultancy services.

ADGS Tax Advisory Limited “ADGS Tax”	Hong Kong, PRC March 17, 2003	80% (through ADGS Hong Kong)	Holding company

Dynamic Golden Limited “Dynamic”	Hong Kong, PRC April 16, 2004	30% (through ADGS Tax, until November 19, 2013 and through Almonds Kisses thereafter)	Property holding company

Vantage Advisory Limited “Vantage”	Hong Kong, PRC March 6, 2008	100% (though Almonds Kisses)	Engage in providing accounting, taxation, company secretarial, and consultancy services.

Motion Tech Development Limited “Motion Tech”	British Virgin Islands October 3, 2007	100% (through Almonds Kisses effective on August 29, 2013)	Property holding company

T H Strategic Management Limited “T H”	Hong Kong, PRC March 16, 2010	100% (though Almonds Kisses effective on October 20, 2013)	Engage in providing accounting, taxation, company secretarial, and consultancy services.

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

F-9

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

2.	Summary of significant accounting policies

Basis of presentation

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

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

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

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

Going concern

The accompanying consolidated financial statements are presented on a going concern basis. Although the Company has a working capital surplus of $255,542 at February 28, 2014, management plans to continue its efforts to raise funds through debt or equity in the near future and increase its profitability to sustain its operations.

F-10

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Foreign currency translation

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

	February 28, 2014	August 31, 2013
	(Unaudited)

Balance sheet items, except for equity accounts	HK$7.7608=$1	HK$7.7525=$1

	February 28,	February 28,
	2014	2013
	(Unaudited)	(Unaudited)

Items in statements of income and cash flows for the three months ended	HK$7.7566=$1	HK$7.7993=$1
Items in statements of income and cash flows for the six months ended	HK$7.7550=$1	HK$7.7994=$1

Revenue recognition

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

(i)

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

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

(ii)

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

(iii)

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

F-11

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Revenue recognition (…/Cont’d)

(iv)

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

Direct cost of revenue

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

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

Cash

Cash represents cash in banks and cash on hand.

The Group considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Substantially all of the cash deposits of the Group are held with financial institutions located in the Hong Kong, PRC. Management believes these financial institutions are of high credit quality. The group held no cash equivalents at February 28, 2014 and August 31, 2013.

Restricted cash

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

Accounts receivable

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

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

F-12

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Deferred revenue

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

Property and equipment

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

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

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

The estimated useful lives of the assets are as follows:

		Estimated Life
Investment property		Over the unexpired term of the lease
Leasehold improvement		5 years
Furniture and fixtures		5 years
Office equipment		5 years
Motor vehicles		5 years

Equity-method investment

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

Non-controlling interest

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

F-13

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Purchased intangible assets

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

●	significant underperformance relative to historical or projected future operating results;
●	significant changes in the manner of use of the acquired assets or the strategy for our overall business;
●	identification of other impaired assets within a reporting unit;
●	disposition of a significant portion of an operating segment;
●	significant negative industry or economic trends;

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

Purchased goodwill

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

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

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

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

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

●	significant underperformance relative to historical or projected future operating results;
●	significant changes in the manner of use of the acquired assets or the strategy for our overall business;
●	identification of other impaired assets within a reporting unit;
●	disposition of a significant portion of business;
●	significant negative industry or economic trends;

Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an accrual basis or when indications of impairment exist.

Assets under capital lease

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

F-14

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

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

Comprehensive income

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

Earnings per share

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

Income taxes

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

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

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

The Group recognizes interest and penalty related to income tax matters as income tax expense. For the six months ended February 28, 2014 and 2013, there was no penalty or interest recognized as income tax expenses.

F-15

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

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

Employee benefits

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

ii)

Contributions to appropriate local contribution retirement schemes pursuant to the relevant labor rules and regulations in Hong Kong which are charged to the cost of sales and general and administrative expenses in the statement of operation as and when the related employee service is provided. The Group incurred $31,859 and $19,659 for the three months period ended February 28, 2014 and 2013; $50,551 and $37,218 for the six months period ended February 28, 2014 and 2013 respectively.

Fair value measurements

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

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

Level 1 -

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

Level 2 -

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

Level 3 -

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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

F-16

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

3.	BUSINESS SEGMENTS

Business segment reporting - by product

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

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

	Accounting & Corporate Services			Corporate Restructuring & Insolvency			Multi-Disciplinary Advisory			Corporate & Other Income		Total
Three months ended February 28, 2014
Segment revenue
Revenue from external customer	$	417,329		$	26,166		$	997,773		$	-	$	1,441,268
Direct cost of revenue		(159,613	)		(34,526	)		(392,262	)		-		(586,401	)
Administrative expense		(112,614	)		(7,061	)		(269,245	)		-		(388,920	)
Gross profit/(loss)		145,102			(15,421	)		336,266			-		465,947

Other income		95			6			226			-		327
Finance cost		(7,793	)		(489	)		(18,631	)		-		(26,913	)

Income/(loss) before income taxes		137,404			(15,904	)		317,861			-		439,361
Income tax		(20,742	)		(1,300	)		(49,589	)		-		(71,631	)
Net income/(loss)	$	116,662		$	(17,204	)	$	268,272		$	-	$	367,730

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

Total assets	$	1,716,361	$	47,056	$	3,278,687	$	696,486	$	5,738,590

Total liabilities	$	955,529	$	60,465	$	2,711,268	$	1,359,497	$	5,086,759

F-17

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

3.	BUSINESS SEGMENTS (…../Cont’d)

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

	Accounting & Corporate Services			Corporate Restructuring & Insolvency			Multi-Disciplinary Advisory			Corporate & Other Income		Total
Three months ended February 28, 2013
Segment revenue
Revenue from external customer	$	251,079		$	832,770		$	212,186		$	-	$	1,296,035
Direct cost of revenue		(125,032	)		(438,706	)		(39,870	)		-		(603,608	)
Administrative expense		(53,459	)		(177,309	)		(45,178	)		-		(275,946	)
Gross profit		72,588			216,755			127,138			-		416,481

Other income		-			-			-			-		-
Finance cost		(6,460	)		(21,428	)		(5,460	)		-		(33,348	)

Income before income taxes		66,128			195,327			121,678			-		383,133
Income tax		(8,328	)		(27,622	)		(7,038	)		-		(42,988	)
Net income	$	57,800		$	167,705		$	114,640		$	-	$	340,145

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

Total assets	$	856,599	$	3,036,888	$	168,687	$	-	$	4,062,174

Total liabilities	$	805,813	$	2,856,836	$	746,428	$	-	$	4,409,077

F-18

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

3.	BUSINESS SEGMENTS (…../Cont’d)

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

	Accounting & Corporate Services			Corporate Restructuring & Insolvency			Multi-Disciplinary Advisory			Corporate & Other Income		Total
Six months ended February 28, 2014
Segment revenue
Revenue from external customer	$	696,971		$	50,690		$	1,853,617		$	-	$	2,601,278
Direct cost of revenue		(327,310	)		(62,331	)		(742,186	)		-		(1,131,827	)
Administrative expense		(165,795	)		(11,725	)		(424,214	)		-		(601,734	)
Gross profit/(loss)		203,866			(23,366	)		687,217			-		867,717

Other income		8,729			763			(7,623	)		-		1,869
Finance cost		(14,813	)		(1,104	)		(39,280	)		-		(55,197	)

Income/(loss) before income taxes		197,782			(23,707	)		640,314			-		814,389
Income tax		(24,054	)		(1,591	)		(59,335	)		-		(84,980	)
Net income/(loss)	$	173,728		$	(25,298	)	$	580,979		$	-	$	729,409

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

Total assets	$	1,716,361	$	47,056	$	3,278,687	$	696,486	$	5,738,590

Total liabilities	$	955,529	$	60,465	$	2,711,268	$	1,359,497	$	5,086,759

F-19

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

3.	BUSINESS SEGMENTS (…../Cont’d)

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

	Accounting & Corporate Services			Corporate Restructuring & Insolvency			Multi-Disciplinary Advisory			Corporate & Other Income		Total
Six months ended February 28, 2013
Segment revenue
Revenue from external customer	$	537,628		$	1,081,057		$	286,949		$	-	$	1,905,634
Direct cost of revenue		(278,048	)		(598,639	)		(90,352	)		-		(967,039	)
Administrative expense		(152,364	)		(263,008	)		(70,983	)		-		(486,355	)
Gross profit		107,216			219,410			125,614			-		452,240

Other income		-			-			-			-		-
Finance cost		(20,293	)		(33,413	)		(9,069	)		-		(62,775	)

Income before income taxes		86,923			185,997			116,545			-		389,465
Income tax		(8,328	)		(27,622	)		(7,038	)		-		(42,988	)
Net income	$	78,595		$	158,375		$	109,507		$	-	$	346,477

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

Total assets	$	856,599	$	3,036,888	$	168,687	$	-	$	4,062,174

Total liabilities	$	805,813	$	2,856,836	$	746,428	$	-	$	4,409,077

F-20

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

4.	ACQUISITION OF SUBSIDIARY

Almonds Kisses Limited (“Almonds Kisses”), a wholly owned subsidiary of ADGS Advisory Inc. (the "Company") entered into a purchase and sale agreement (the "Purchase Agreement") dated October 20, 2013 which was previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 23, 2013. Pursuant to the Purchase Agreement, the Company agreed to purchase all shares of T H Strategic Management Limited (“T H Strategic”), a Hong Kong, People’s Republic of China incorporated company (the "Acquisition") for purchase consideration of approximately $516,000 (HK$4 million). T H Strategic Management Limited is engaged in providing accounting, taxation, company secretarial and consultancy services.

In consideration for acquisition of the issued and outstanding shares of TH Strategic, Almonds Kisses has agreed to pay the seller the sum of about $516,000 (HK$4 million), payable in four equal monthly installments of about $129,000 (HK$1 million) each. Almonds Kisses has fully paid the consideration of acquisition before the end of February 2014.

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

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

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

F-21

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

CASH

Cash represents cash in bank and cash on hand. Cash as of February 28, 2014 and August 31, 2013 consists of the following:

	February 28,		August 31,
	2014		2013
	(Unaudited)
Bank balances and cash	$	1,112,662	$	164,314

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

6.	RESTRICTED CASH

At February 28, 2014 and August 31, 2013, $129,465 of cash was restricted and deposited in a bank as security for installment loans payable to the bank.

F-22

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

7.	DUE FROM A RELATED PARTY

The amounts due from the Group CFO are interest free, unsecured and repayable on demand. The Advances to the CFO were funded by Group bank loans. These bank loans were secured by real property owned by the CFO. The activity for such amounts due to shareholders for the period/year ended February 28, 2014 and August 31, 2013 is as follows:

	Period Ended February 28, 2014
	(Unaudited)
Balance due at September 1, 2013	$	418,658
Amount repaid during the period		(387,159	)
Exchange alignment		(449	)
Balance due at February 28, 2014	$	31,050

	Year Ended August 31, 2013

Balance due at September 1, 2012	$	241,036
Amount advanced during the year		4,831,702
Amount repaid during the year		(4,655,559	)
Exchange alignment		1,479
Balance due at August 31, 2013	$	418,658

8.	LOAN FROM A RELATED PARTY

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

F-23

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

9.	PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

	February 28,			August 31,
	2014			2013
	(Unaudited)

Investment property	$	1,909,062		$	1,909,062
Leasehold improvement		103,414			85,345
Furniture and fixtures		5,632			5,632
Office equipment		6,730			6,730
Motor vehicle		145,407			145,407
		2,170,245			2,152,176
Less: Accumulated depreciation		(116,916	)		(63,486	)
	$	2,053,329		$	2,088,690

Depreciation expense for the three months ended February 28, 2014 and 2013 amounted to $27,613 and $8,958; for the six months ended February 28, 2014 and 2013 amounted to $53,431 and $15,243 respectively.

Included in motor vehicle of the Group, the net carrying amount of $105,646 as of February 28, 2014 and $120,183 as of August 31, 2013 is under capital lease with the related depreciation charge for of $7,267 and $4,075 for the three months ended February 28, 2014 and 2013; $14,537 and $5,477 for the six months ended February 28, 2014 and 2013 respectively.

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

10.	ASSETS HELD UNDER CAPITAL LEASES

The Group leases a motor vehicle that is classified as capital lease. The cost of the motor vehicle under capital leases is included in the Balance Sheets as property and equipment and was $105,646 (net of accumulated depreciation) at February 28, 2014. Amortization of assets under capital leases is included in depreciation expense. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of February 28, 2014, are as follows:

	Amount

Year ending August 31,
2014 (Six months)	$	13,658
2015		27,316
2016		27,316
2017		27,316
2018		10,745
Thereafter		-
Total minimum lease payment		106,351
Less: Imputed interest		(6,136	)
Present value of net minimum lease payments		100,215
Less: Current maturities of capital leases obligations		(12,004	)
Long-term capital leases obligations	$	88,211

F-24

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

11.	INTANGIBLE ASSETS

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

The intangible assets are amortized using the straight line method over a period of 10 years. Amortization expenses for the three months ended February 28, 2014 and 2013 are $48,990 and $44,875; for the six months ended February 28, 2014 and 2013 are $98,003 and $89,750 respectively. The future amortization as of February 28, 2014 will be as follows:

	Amount

Year ending August 31,
2014 (Six months)	$	97,928
2015		194,191
2016		92,774
2017		92,774
2018		92,774
Thereafter		280,186
	$	850,627

12.	INCOME TAXES

The entities that comprise the Group file separate tax returns in the respective tax jurisdictions that they operate. The Company files income tax returns in the U.S. federal and state, and foreign jurisdictions such as Hong Kong, People’s Republic of China. The Inland Revenue Department of Hong Kong, People’s Republic of China would have a 7 year period that it could make changes on tax returns filed.

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

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

The Company’s subsidiary, ADGS Advisory Limited, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $81,195 and $42,823 has been made for the six months ended February 28, 2014 and 2013, respectively.

The Company’s subsidiary, ADGS Tax Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the six months ended February 28, 2014 and 2013.

The Company’s subsidiary, Vantage Advisory Limited, is domiciled in Hong Kong. No provision for Hong Kong profits tax has been made as the subsidiary sustained tax losses for the six months ended February 28, 2014.

F-25

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

12.	INCOME TAXES (…/Cont’d)

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

The Company’s subsidiary, T H Strategic Management Limited acquired on October 20, 2013, is domiciled in Hong Kong, and a provision for Hong Kong profits tax in the amount of $3,785 has been made for the six months ended February 28, 2014.

The Company's income tax for the six months ended February 28, 2014 and 2013 can be reconciled to the income before income tax expenses in the statement of operations as follows:

	For the Three months ended February 28,						For the Six months ended February 28,
	2014			2013			2014			2013

Income before tax	$	439,361		$	383,133		$	814,389		$	389,465

Expected Hong Kong income tax expense at statutory tax rate of 16.5%	$	72,495		$	63,217		$	134,375		$	64,262
Temporary difference		(35,086	)		(3,528	)		(73,679	)		(3,240	)
Utilization of tax losses		-			(21,382	)		193			(27,394	)
Unrealised tax loss		34,222			4,681			24,091			9,360
Actual income tax expense	$	71,631		$	42,988		$	84,980		$	42,988

	February 28, 2014		August 31, 2013
	(Unaudited)
Deferred tax asset:
Unrecognized tax losses	$	-	$	-

Deferred tax liability:
Difference between book and tax depreciation	$	1,242	$	2,340

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Other major temporary differences that give rise to the deferred tax assets and liabilities are net operating losses carry forwards. As the amounts are immaterial as of February 28, 2014 and August 31, 2013, no deferred taxes have been provided for in the accounts.

F-26

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

13.	BANK LOANS

The details of the bank loans outstanding as of February 28, 2014 (unaudited) are as follows:

		Outstanding loan	Current annualized
Name of bank		amount	interest rate	Nature of loans	Term of loans	Collateral

Shanghai Commercial Bank ("SCB")		US$930,270 (HK$7,219,643)	SCB annual rate of 3%	Term loan	January 30, 2012 to December 31, 2035	Property and personal guarantee from related party and third party

Hang Seng Bank ("HSB")		US$117,276 (HK$910,153)	HSB monthly rate of 0.38%	Term loan	June 27, 2012 to June 26, 2017	Property and personal guarantee from related party and third party

Hitachi Capital (HK) Ltd ("HC")		US$29,737 (HK$230,779)	HC annual rate of 2.14% flat	Term loan	January 27, 2014 to January 26, 2016	Personal guarantee from related party and third party

DBS		US$1,181,342 (HK$9,168,157)	DBS annual rate of 2.75%	Term loan	November 12, 2012 to 12 October, 2037	Property and personal guarantee from related party

Bank of East Asia (“BEA”)		US$36,508 (HK$283,333)	BEA monthly rate of 0.6%	Term loan	February 20, 2014 to February 20, 2015	Personal guarantee from related party

	$	2,295,133

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

		Outstanding loan	Current annualized
Name of bank		amount	interest rate	Nature of loans	Term of loans	Collateral

Shanghai Commercial Bank ("SCB")		US$943,651 (HK$7,315,652)	SCB annual rate of 3%	Term loan	January 30, 2012 to December 31, 2035	Property and personal guarantee from related party and third party

Hang Seng Bank ("HSB")		US$136,863 (HK$1,061,028)	HSB monthly rate of 0.38%	Term loan	June 27, 2012 to June 26, 2017	Property and personal guarantee from related party and third party

Hitachi Capital (HK) Ltd ("HC")		US$5,573 (HK$43,204)	HC annual rate of 6.98%	Term loan	June 29, 2012 to November 25, 2013	Personal guarantee from related party

DBS		US$1,200,698 (HK$9,308,419)	DBS annual rate of 2.75%	Term loan	November 12, 2012 to 12 October, 2037	Property and personal guarantee from related party

	$	2,286,785

F-27

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

13.	BANK LOANS (…../Cont’d)

Interest expenses for the three months ended February 28, 2014 and 2013 are $13,177 and $26,684; six months ended February 28, 2014 and 2013 are $27,840 and $55,944 respectively.

Bank loans repayment schedule is as follows:

	February 28, 2014		August 31, 2013
	(Unaudited)
Year ending August 31,
2014 (Six months)	$	76,531	$	107,548
2015		149,718		114,303
2016		119,244		118,253
2017		85,557		90,382
2018		74,406		79,363
Thereafter		1,789,677		1,776,936
	$	2,295,133	$	2,286,785

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

14.	DEFERRED REVENUE

	February 28, 2014		August 31, 2013
	(Unaudited)
Deferred revenue – current portion	$	144,959	$	145,114
Deferred revenue – net of current portion		362,398		435,343
	$	507,357	$	580,457

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

15.	CONCENTRATIONS OF RISK

The Group's credit risk is somewhat limited due to a relatively large customer base. During the three- and six- months ended February 28, 2014 and 2013, the Group had no customer which accounted for 10% or more of total revenue or 10% or more of total accounts receivable at February 28, 2014 or August 31, 2013.

F-28

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

16.	RELATED PARTY TRANSACTIONS

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

	For the three months ended February 28, 2014		For the three months ended February 28, 2013		For the six months ended February 28, 2014		For the six months ended February 28, 2013
Revenue:-
Accounting & corporate services	$	102,121	$	-	$	176,699	$	-
Multi-disciplinary Advisory		515,542				973,002		-
	$	617,663	$	-	$	1,149,701	$	-
Direct cost of revenue:-
Multi-Disciplinary Advisory	$	28,821	$	-	$	63,426	$	-

These balances primarily represent revenue and direct cost of revenue, which transactions related to the Company's Chief Operating Officer and related parties for the three and six months ended February 2014 and 2013.

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

F-29

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

17.	COMMITMENTS AND CONTINGENCIES

Commitments and contingencies

(a)

In the normal course of business, the Group is subject to contingencies, including legal proceedings and claims arising within the normal course of businesses that relate to a wide range of matters. The Group records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, evidence and the specifics of each matter. The Group has not recognized a provision for claims or contingencies as of February 28, 2014 and August 31, 2013.

(b)

Rental expense amounted to $40,772 and $39,483 for the three months ended February 28, 2014 and 2013; $83,315 and $80,463 for the six months ended February 28, 2014 and 2013 respectively. The total future minimum lease payments under non-cancellable operating leases with respect to premises as of February 28, 2014 are payable as follows

Year Ending August 31,	Rental

2014 (Six months)	$	66,191
2015		94,156
2016		-
2017		-
2018		-
Over five years		-
	$	160,347

(c)

Deferred revenue amounted to $72,479 and nil for the six months ended February 28, 2014 and 2013 respectively. The total future revenue under non-cancellable agreement with respect to consultancy service income as of February 28, 2014 are receivable as follows:

Year Ending August 31,	Revenue

2014 (Six months)	$	72,480
2015		144,959
2016		144,959
2017		144,959
2018		-
Over five years		-
	$	507,357

Economic and political risks

(d)

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

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

F-30

ADGS ADVISORY, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(IN US DOLLARS)

18.	SUBSEQUENT EVENT

On March 19, 2014, the Company issued 1,400,000 shares of common stock to 12 investors for the purchase price of $0.30 per share or $420,000 in the aggregate which shares were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the U.S. Securities Act of 1933, as amended, and Regulation S thereunder. All investors represented and warranted that they were non-U.S. persons with the meaning of Regulation S.

On April 15, 2014, the Company issued 1,290,000 shares of common stock to a director for the purchase price of $0.30 per share or $387,000 in the aggregate which shares were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the U.S. Securities Act of 1933, as amended, and Regulation S thereunder. Such investor represented and warranted that he was a non-U.S. person with the meaning of Regulation S.

F-31

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

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

Forward-Looking Statements

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

Company Overview

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

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

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

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

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

ADGS Advisory, Inc.

(formerly Life Nutrition Products, Inc.),

a Delaware corporation

ê 100%

Almonds Kisses Limited (BVI),

a British Virgin Islands company

ê 100%	ê 100%	ê 100%	ê 100%	ê 30%
ADGS Advisory Limited	Vantage Advisory Limited,	TH Strategic Management	Motion Tech Development	Dynamic Golden
a Hong Kong corporation	a Hong Kong corporation	Limited, a Hong Kong c	Limited, a British Virgin Islands	Limited, a Hong Kong
	corporation	orporation	company
ê 80%
ADGS Tax Advisory Limited
a Hong Kong corporation

Critical Accounting Policies

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

Basis of presentation

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

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

Going concern

Revenue recognition

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

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

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

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

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

Purchased intangible assets and goodwill

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

- significant underperformance relative to historical or projected future operating results;

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

- identification of other impaired assets within a reporting unit;

- disposition of a significant portion of an operating segment;

- significant negative industry or economic trends;

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

Income taxes

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

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

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

The Company recognizes interest and penalty related to income tax matters as income tax expense. For the six months ended February 28, 2014 and 2013, there was no penalty or interest recognized as income tax expenses.

Economic and political risks

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

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

Recently issued accounting standards not yet adopted

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

Trends and Uncertainties

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

Other key uncertainties include our high leverage and highly variable interest expense. To date, we have significantly relied upon debt financings to fund our operations. At February 28, 2014 (unaudited) and August 31, 2013 (audited), we had outstanding bank loans (excluding bank overdrafts) in the principal amount of $2,295,133 and $2,286,785, respectively. We also had bank overdrafts of $777,837 as of February 28, 2014 compared with $744,077 as of August 31, 2013. Interest expense from bank loans and overdrafts (excluding capital lease interest) for the six months ended February 28, 2014 was $52,895 and for the six months ended February 28, 2013 was $61,879. Such loans are primarily term loans with maturity dates ranging from February 2014 to October 2037. Approximately $0.5 million of the bank loans are to be repaid over the next five years. While we have begun to achieve profitable operations during fiscal 2013, there can be no assurance that such profitability will continue or that revenues from our operations will be able to service these debt obligations. See “Risk Factors” elsewhere in this report for further discussion of these uncertainties and others.

In addition to the foregoing, as of February 28, 2014, advances to a related party total $31,050. The advances to the related party represent unsecured, non-interesting bearing loans without fixed repayment terms. Although most of such advances have been repaid to the Company, such advances may have detrimentally affected our ability to do business insofar that such advances represented a major portion of the Company’s available cash. These advances were provided as a special accommodation to such related party whose personal properties were provided as collateral for bank loans obtained by the Company. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to May 31, 2014. The foregoing represents another key uncertainty since no assurance can be made that such advances will be repaid on or before May 31, 2014 or at all. In addition, although such advances are no longer being made to such shareholder, such advances have not generated income to the Company and may have detrimentally affected our ability to grow the business for the benefit of all of the shareholders.

Principal Components of Our Income Statement

Revenue

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

Operating expenses

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

Direct cost of revenue

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

General and administrative expenses

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

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

Other comprehensive income

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

For the Three Months Ended February 28, 2014 and February 28, 2013 and For the Six Months Ended February 28, 2014 and February 28, 2013 (unaudited)

The following table presents the consolidated statements of operations of the Company for the three months ended February 28, 2014 as compared to the results of operations for the three months ended February 28, 2013 and for the six months ended February 28, 2014 as compared to the results of operations for the six months ended February 28, 2013.

	For the Three Months Ended February 28,						For the Six Months Ended February 28,
	2014 (unaudited)			2013 (unaudited)			2014 (unaudited)			2013 (unaudited)
				(A)						(A)

Revenue	$	1,441,268		$	1,296,035		$	2,601,278		$	1,905,634
Less: Operating expenses
Direct cost of revenue		(586,401	)		(603,608	)		(1,131,827	)		(967,039	)
General and administrative expenses		(388,920	)		(275,946	)		(601,734	)		(486,355	)
Operating profit		465,947			416,481			867,717			452,240
Other income		327			-			1,869			-
Other expenses		(26,913	)		(33,348	)		(55,197	)		(62,775	)
Net profit		439,361			383,133			814,389			389,465
Income tax expenses		(71,631	)		(42,988	)		(84,980	)		(42,988	)
Other comprehensive income/(loss)		(4,652	)		(67	)		1,270			(115	)
Total comprehensive income		363,078			340,078			730,679			346,362
Comprehensive loss attributable to non-controlling interests		5,160			5,674			10,934			11,345
Comprehensive income attributable to ADGS Advisory, Inc.	$	368,238		$	345,752		$	741,613		$	357,707

_____________

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

Revenue

For the Six Months Ended February 28, 2014 and February 28, 2013

Our business for the six months ended February 28, 2014 expanded rapidly. We recorded revenue of $2.6 million for the six months ended February 28, 2014, representing an increase of $0.7 million as compared to the results of $1.9 million for the same period ended February 28, 2013. The increase was primarily due to the increase of revenue stream in corporate restructuring, insolvency services and multi-disciplinary advisory services and a steady growth in accounting and corporate services.

For the Three Months Ended February 28, 2014 and February 28, 2013

We recorded revenue of $1.4 million for the three months ended February 28, 2014, representing an increase of $0.1 million as compared to $1.3 million for the same period ended February 28, 2013.

General and administrative expenses

	For the Three Months Ended February 28,						%			For the Six Months Ended February 28,						%
	2014			2013			change			2014			2013			change
Revenue	$	1,441,268		$	1,296,035			+11	%	$	2,601,278		$	1,905,634			+37	%
Less: Operating expenses
Direct cost of revenue		(586,401	)		(603,508	)		-3	%		(1,131,827	)		(967,039	)		+17	%
General and administrative expenses		(388,920	)		(275,946	)		+41	%		(601,734	)		(486,355	)		+24	%
Operating profit	$	465,947		$	416,481			+12	%	$	867,717		$	452,240			+92	%

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

Other expense

Other expense represents the interest expense for the bank loans, bank overdrafts, capital lease and others of $26,913 for the three months ended February 28, 2014 and $55,197 for the six months ended February 28, 2014 and $33,348 for the three months ended February 28, 2013 and $62,775 for the six months ended February 28, 2013.

Other comprehensive income/(loss)

Other comprehensive income/(loss) represents the foreign currency translation adjustment of $4,652 loss for the three months ended February 28, 2014 and $1,270 for the six months ended February 28, 2014 and $67 loss for the three months ended February 28, 2013 and $115 loss for the six months ended February 28, 2013.

Liquidity and Capital Resources

As of February 28, 2014, we had cash on hand of $1,112,662, which represented an increase of $948,348 from $164,314 as of August 31, 2013, total current assets of $1,923,167, and total current liabilities of $1,667,625. Working capital at February 28, 2014 was $255,542 and the ratio of current assets to current liabilities was 1.15 to 1 as of February 28, 2014.

As of February 28, 2014 we had long term debt of $3,419,134, which represented an decrease of $34,478 from $3,453,612 as of August 31, 2013; total assets of $5,738,590 as of February 28, 2014 representing an increase of $972,713 from $4,765,877 as of August 31, 2013. The ratio of long term debts to total assets was 0.6 to 1 as of February 28, 2014.

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

The following is a summary of cash provided by or used in each of the indicated type of activities during the six months ended February 28, 2014 and February 28, 2013, respectively:

	For the Six Months Ended February 28,
Cash provided by/(used in):	2014 (unaudited)			2013 (unaudited)
Operating activities	$	983,040		$	453,694
Investing activities		(609,775	)		(133,366	)
Financing activities		757,490			(104,018	)
Effect of change of exchange rates		(407	)		5

Cash, beginning of period		164,314			129,001
Cash, end of period	$	1,112,662		$	345,316

Net cash provided by operating activities was $983,040 for the six months ended February 28, 2014, as compared to net cash provided by operating activities of $453,694 for same period ended February 28, 2013. The increase was mainly due to a net profit of $740,343, plus other receivables of $93,945, prepaid expenses of $64,051 and income tax payable of $110,440, offset by accounts receivable of $(49,038), utility and other deposits of $(32,315), accrued liabilities of $(20,677), and accrued expenses for the Company and deferred revenue of $(72,534) due to the recognition of consultancy services provided to a third party with a fixed fee and term of four years.

Net cash used in investing activities was $(609,775) for the six months ended February 28, 2014, as compared to net cash used in investing activities of $(133,366) for the six months ended February 28, 2013. The increase was mainly due to the acquisition of a subsidiary, TH Strategic Management Limited, which amounted to $475,605 paid during the six months ended February 28, 2014.

Net cash provided by financing activities was $757,490 for the six months ended February 28, 2014, as compared to net cash used in financing activities of $104,018 for the six months ended February 28, 2013. The increase was primarily caused by repayment to the Company of advances made and expenses paid on behalf of a related party of $387,159, receipt of $154,988 for future share issuances, and increase in bank loans and bank overdraft of $86,132 and $34,582, respectively. The advances to shareholder represented unsecured, non-interesting bearing loans without fixed repayment terms. Although there is no binding obligation on the part of the shareholder to repay such loans, such shareholder previously informally agreed to repay such amounts on or before November 1, 2013 but has since revised such date to May 31, 2014.

The Company had bank loans with outstanding principal of $2.3 million as of February 28, 2014. Summary of total bank loans is as follows:

Nature of loans	Terms of loans	Outstanding loan amount		Current annualized interest rate	Collateral

Term loan	Ranging from 1 year to 25 years	$	2,295,133	Ranging from annual rate from 0.38% to 6.98%	Property and personal guarantee from related party and third party

		$	2,295,133

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

The Company had assets held under capital leases, which represent leases of motor vehicle. The cost of motor vehicle under capital lease was $105,646 at February 28, 2014. The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of February 28, 2014 are as follows:

	Amount
Year ending August 31,
2014 (Six months)	$	13,658
2015		27,316
2016		27,316
2017		27,316
2018		10,745
Thereafter		-
Total minimum lease payment	$	106,351
Less: Imputed interest		(6,136	)
Present value of net minimum lease payments	$	100,215
Less: Current maturities of capital leases obligations		(12,004	)
Long-term capital leases obligations	$	88,211

Material capital expenditure commitments

We anticipate that we will require a high level of capital expenditure in the foreseeable future to fund our future growth. We intend to fund our capital expenditures and future acquisitions out of internal sources of liquidity and/or through access to additional financing from external sources. Currently, the Company has not entered into any agreements for any potential acquisitions. As a result, there are no material capital expenditure commitments as of February 28, 2014.

Contractual Obligations

The following table sets forth information regarding the Company's contractual payment obligations excluding the bank overdrafts of $0.8 million as of February 28, 2014.

			Payment due by period
Contractual obligations	Total		< 1 year		1 - 3 years		3 - 5 years		> 5 years

Borrowing:
- Capital lease	$	106,351	$	13,658	$	54,632	$	38,0561	$	-
- Bank loan		2,295,133		76,531		268,962		159,963		1,789,677

- Loan from a related party		749,923		-		-		749,923		-
Operating lease obligation:
- Office rental		160,347		66,191		94,156		-		-
	$	3,311,750	$	156,380	$	417,750	$	947,943	$	1,789,677

Off-Balance Sheet Arrangement

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

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

We may be exposed to interest rate risk in relation to the bank loans we maintain. The interest rate risk is managed by the Directors of the Company on an ongoing basis with the primary objective of limiting the extent to which interest expense could be affected by adverse movement in interest rates. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s post-tax profit for the six months ended February 28, 2014 would increase/decrease by $3,843 as compared with the combined post-tax profit for the six months ended February 28, 2013 while the Company’s post-tax profit for the three months ended February 28, 2014 would increase/decrease by $230 as compared with the combined post-tax profit for the three months ended February 28, 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, as of February 28, 2014, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not currently a party to any pending material legal proceeding nor is it aware of any proceeding contemplated by any individual, company, entity or governmental authority involving the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6.Exhibits.

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

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

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

101*		The following financial information from our Quarterly Report on Form 10-Q for the quarter ended February 28, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements

________________

In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

SIGNATURES

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

	ADGS ADVISORY, INC.
	(Registrant)

Dated: April 21, 2014	By:	/s/ Li Lai Ying
		Li Lai Ying,
		Chief Executive Officer
		(Principal Executive Officer)


Dated: April 21, 2014	By:	/s/ Tong Wing Shan
		Tong Wing Shan
		Chief Financial Officer
		(Principal Financial Officer)