LEGEND ENTERTAINMENT LIMITED 傳奇娛樂有限公司 (Incorporated in Hong Kong with limited liability)

Transcription

1 LEGEND ENTERTAINMENT LIMITED (Incorporated in Hong Kong with limited liability) REPORTS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 ST DECEMBER 2011

2 LEGEND ENTERTAINMENT LIMITED Reports and Contents Page Report of the directors Independent auditor s report Income statement... 5 Balance sheet... 6 Accounting policies and explanatory notes to the financial statements Detailed Income Statements (For Management Purposes Only)... APPENDIX

3 LEGEND ENTERTAINMENT LIMITED REPORT OF THE DIRECTORS The directors submit their annual report and audited financial statements for the year ended 31 st December PRINCIPAL ACTIVITY The principal activity of the Company is engaged in organizing fighting events. 2. RESULTS AND APPROPRIATIONS The results of the company for the year ended 31 st December 2011 and the state of the Company s affairs at that date are set out in the financial statement from page 5 to 11. The results for the year ended 31 st December 2011 are set out in the income statement on page 5. The directors do not recommend the payment of any dividend. 3. SHARE CAPITAL AND RESERVES Details of share capital and reserves of the company are set out in note 10 to the Company s financial statements. 4. FIXED ASSETS Details of movements during the period in the property, plant and equipment and intangible assets of the Company are set out in notes 6 and 7 to the financial statements. 5. DIRECTORS The directors who held office during the period and up to the date of this report were:- Mr. HASKAMP Michael Oliver Mr. POLLAK Christopher Richard Mr. AIELLO Paul appointed on 12 th July 2011 Mr. SWARTZ Josh appointed on 12 th July 2011 All existing directors retire in accordance with article 7 of the company's articles of association but, being eligible, offer themselves for re-election. 6. DIRECTORS INTERESTS IN CONTRACTS No contracts of significance in relation to the Company s business to which the Company, its ultimate parent, immediate parent, or its subsidiaries was a party and in which the director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year

4 LEGEND ENTERTAINMENT LIMITED REPORT OF THE DIRECTORS 7. MANAGEMENT CONTRACTS The Company has not entered into any contract whereby the management and administration of the whole or any substantial part of the Company's business has been undertaken by a party other than the Company's directors or employees. 8. ARRANGEMENTS TO ACQUIRE SHARES OR DEBENTURES During the year, the two shareholders who are also the directors of the Company, have exchanged their 10,000 ordinary shares of the Company for 10 millions of ordinary shares of US$0.001 per value each of a company called Legend Entertainment Group which has then become the holding company of the Company. 9. CONVERTIBLE PROMISSORY NOTES During the year, the convertible promissory note holders converted their notes into the Series A Preferred Shares of its holding company, Legend Entertainment Group, a company incorporated in the Cayman Islands. The convertible notes of 3,343,463 (originally denominated in US$430,000) were converted into 663,577 Series A Preferred Shares of a nominal or par value of US$0.001 each at a consideration of a 20% discount on the original Series A issue price of US$0.81 per share. 10. AUDITORS A resolution to reappoint Messrs. SCS Global Audit & Co., Certified Public Accountants, as auditor of the company, will be proposed at the forthcoming annual general meeting. On behalf of the Board Chairman Hong Kong, 15 th November

5 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDER OF LEGEND ENTERTAINMENT LIMITED (Incorporated in Hong Kong with limited liability) Report on the Financial Statements We have audited the financial statements of Legend Entertainment Limited set out on pages 5 to 11, which comprise the balance sheet as at 31 st December 2011, and the income statement for the period then ended, and a summary of significant accounting policies and other explanatory notes. Directors responsibilities for the financial statements The directors are responsible for the preparation and presentation of these financial statements in accordance with the Small and Medium-sized Entity Financial Reporting Standard (SME-FRS) issued by the Hong Kong Institute of Certified Public Accountants. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In addition, Section 141D of the Companies Ordinance requires that the balance sheet together with the notes thereon should be prepared in accordance with the requirements of the Eleventh Schedule to that Ordinance. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Hong Kong Standards on Auditing and with reference to PN900 (Revised) Audit of Financial Statements Prepared in Accordance with the Small and Medium-sized Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

6 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDER OF LEGEND ENTERTAINMENT LIMITED (Incorporated in Hong Kong with limited liability) Fundamental uncertainty In forming our opinion, we have considered the adequacy of disclosures made concerning the basis of preparation of financial statements by the directors. At 31 st December 2011, the Company has a shareholder s deficit amounted to 2011: 12,423,536 (2010: 6,033,630) and a net current liabilities amounted to 2011: 12,423,536 (2010: 2,690,166). The shareholder of the Company has confirmed its intention to provide continuing financial support to the Company in order to enable it to meet its liabilities as they fall due and to enable the Company to continue trading for the foreseeable future. Consequently, the financial statements have been prepared on a going concern basis. The financial statements do not include any adjustment to the assets and liabilities that would result from a failure to obtain such financial support. Details of the circumstances relating to this fundamental uncertainty are described in note 11 to the financial statements. We consider that appropriate disclosures have been made and our opinion is not qualified in this respect. Opinion In our opinion, the financial statements have been properly prepared, in all material respects, in accordance with the SME-FRS. In addition, in our opinion the balance sheet together with the notes thereon is properly drawn up so as to exhibit a true and correct view of the state of the Company s affairs as at 31 st December 2011 according to the best of our information and explanations given to us, and as shown by the books of the Company. Report on other matters under section 141D of the Hong Kong Companies Ordinance We report that we have obtained all the information and explanations which we have required. Other Matters This report, including the opinion, has been prepared for and only for you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. SCS Global Audit & Co. Certified Public Accountants Hong Kong, Date: 15 th November

7 INCOME STATEMENT FOR THE YEAR ENDED 31 ST DECEMBER 2011 Note Year ended Period from to Revenue 2 7,703,804 1,328,366 Cost of revenue (10,109,303) (5,809,236) Gross loss (2,405,499) (4,480,870) Other income 2 1,295,705 4 Administrative expenses (5,280,112) (1,562,764) Loss before tax 3 (6,389,906) (6,043,630) Income tax expense Loss for the period (6,389,906) (6,043,630) The accompanying Accounting Policies and Explanatory Notes form an integral part of, and should be read in conjunction with, these financial statements

8 BALANCE SHEET AS AT 31 ST DECEMBER 2011 Note As at 2011 As at 2010 NON-CURRENT ASSETS Property, plant and equipment 6 218,132 76,300 Intangible assets 7 85,685 33, , ,649 CURRENT ASSETS Account receivable 1,861,416 2,865 Prepayment and deposit 320, ,099 Cash and bank balances 338,717 65,796 2,520, ,760 LESS: CURRENT LIABILITIES Trade and other payables 1,886, ,905 Amounts due to the directors 8 269,118 1,945,670 Amount due to holding company 8 13,091, ,000 15,247,704 3,106,575 NET CURRENT LIABLILITIES (12,727,353) (2,799,815) Total assets less current liabilities (12,423,536) (2,690,166) LESS: NON-CURRENT LIABILITIES Convertible notes 9-3,343,464 NET LIABLILITIES (12,423,536) (6,033,630) EQUITY Share capital Authorised: Issued and fully paid: 10,000 ordinary shares of 1 each 10 10,000 10,000 Accumulated losses 10 (12,433,536) (6,043,630) (12,423,536) (6,033,630) Approved and authorized for issue by the Board of Directors on 15 th November Director Director The accompanying Accounting Policies and Explanatory Notes form an integral part of, and should be read in conjunction with, these financial statements

9 ACCOUNTING POLICIES AND EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS Reporting entity Legend Entertainment Limited is incorporated in Hong Kong with limited liability. The Company s registered office is located at Room , 69 Jervois Street, Sheung Wan, Hong Kong. The principal activity of the Company is engaged in organizing fighting event. The Company has adopted a trade name Legend Fighting Championship for its business. 1. Basis of preparation and accounting policies The Company qualifies under the Companies Ordinance to prepare and present its financial statements in accordance with Section 141D of that Ordinance. The Company s shareholder has unanimously agreed in writing to apply Section 141D with respect to the Company s financial statements for the period ended 31 st December These financial statements comply with the Small and Medium-sized Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified Public Accountants and have been prepared under the accrual basis of accounting and on the basis that the Company is a going concern. The measurement base adopted is the historical cost convention. The following are the specific accounting policies that are necessary for a proper understanding of the financial statements: (a) Revenue Revenue is recognised when it is probable that the economic benefits will flow to the Company and when the revenue can be measured reliably, on the following bases: (i) (ii) Merchandise sales are recognised on transfer of risks and rewards of ownership, which generally coincides with the time when goods are delivered to customers and title being passed. Ticketing income is recognised in the period when tickets are sold. (iii) Interest income is accrued on a time proportion basis on the principal outstanding and at the interest rate applicable. (b) Foreign exchange Foreign currency transactions are converted at the exchange rate applicable at the transaction date. Foreign currency monetary items are translated into Hong Kong Dollars using exchange rates applicable at the balance sheet date. Gains and losses on foreign exchange are recognised in the income statement. (c) Taxation Income tax expense represents current tax expense. The income tax payable represents the amounts expected to be paid to the taxation authority, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is not provided

10 ACCOUNTING POLICIES AND EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation and accounting policies (Cont d) (d) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The depreciable amount of an item of property, plant and equipment is allocated on a systematic basis over its estimated useful life using the straight-line method. The principal annual rates used for depreciation are as follows: Fixtures and fittings 25% Computer and computer software 33.33% (e) Intangible assets Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses and are amortised on a systematic basis over their estimated useful lives using the straight-line method. (f) Impairment of assets An assessment is made at each balance sheet date to determine whether there is any indication of impairment or reversal of previous impairment, including items of property, plant and equipment and intangible assets. In the event that an asset s carrying amount exceeds its recoverable amount, the carrying amount is reduced to recoverable amount and an impairment loss is recognised in the income statement. 2. Revenue An analysis of the company s revenue is as follows: Revenue Year ended Period from to Merchandise sales 2,843 6,600 Sponsorship 5,798,594 15,000 Ticketing income 307, ,766 TV licensing 1,595, ,000 7,703,804 1,328,366 Other Income Commissions 4,932 - Interest income Waive of loans from directors 1,290,000-1,295,

11 ACCOUNTING POLICIES AND EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 3. Loss before tax Loss before tax is arrived at after charging the following items: Year ended Period from to Amortization 26,972 - Auditor s remuneration 48,800 56,000 Depreciation 43,282 23,800 Foreign exchange loss 38,693 9,990 Staff salaries and allowance 1,155,011 - Staff MPF contribution 25,050 3, Income tax expense No provision for Hong Kong profits tax is required since the company has no assessable profits for the period. 5. Directors remuneration Directors remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows: Period from Year ended to Directors fees - - Emoluments and other benefits 1,010, ,

12 ACCOUNTING POLICIES AND EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 6. Property, plant and equipment Computer equipment Fixtures and fittings MMA Ring Total Cost At 31 st December , ,100 Additions 73,821 26,799 84, ,114 At 31 st December ,821 26, , ,214 Accumulated depreciation At 31 st December (23,800) (23,800) Charge for the year (6,575) (3,350) (33,357) (43,282) At 31 st December 2011 (6,575) (3,350) (57,157) (67,082) Net book value As at 31 st December ,246 23, , ,132 As at 31 st December ,300 76, Intangible assets Computer software Website Total Cost At 31 st December ,399 61,399 Additions 33,308 46,000 79,308 At 31 st December , , ,707 Accumulated amortization At 31 st December (28,050) (28,050) Charge for the year (3,797) (23,175) (26,972) At 31 st December 2011 (3,797) (51,225) (55,022) Net book value As at 31 st December ,511 56,174 85,685 As at 31 st December ,349 33,

13 ACCOUNTING POLICIES AND EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 8. Amount(s) due to the directors and the holding company The amount(s) due to the directors and the holding company are unsecured, interest-free and have no fixed terms of repayment. 9. Convertible promissory notes During the year, the convertible promissory note holders converted their notes into the Series A Preferred Shares of its holding company, Legend Entertainment Group, a company incorporated in the Cayman Islands. The convertible notes of 3,343,463 (originally denominated in US$430,000) were converted into 663,577 Series A Preferred Shares of a nominal or par value of US$0.001 each at a consideration of a 20% discount on the original Series A issue price of US$0.81 per share. 10. Changes in equity Share Accumulated capital losses Total As at 31 st December ,000 (6,043,630) (6,033,630) Loss for the period - (6,389,906) (6,389,906) At 31 st December ,000 (12,433,536) (12,423,536) 11. Going concern Notwithstanding the existence of a deficiency on shareholder s fund and significant net current liabilities at balance sheet date, the financial statements of the Company have been prepared on a going concern basis. The continuation of the Company s business depends upon the continuous financial support by the Company s shareholder at a level sufficient to finance the Company s current activities. The shareholder has indicated its willingness to do so. 12. Approval of financial statements These financial statements were authorised for issue by the Company s Board of Directors on 15 th November

14 (For Management Purposes Only) DETAILED INCOME STATEMENT FOR THE YEAR ENDED 31 ST DECEMBER 2011 APPENDIX 1 Appx. Year ended Period from to (Restated) REVENUE Merchandise sales 2,843 6,600 Sponsorship 5,798,594 15,000 Ticketing income 307, ,766 TV licensing 1,595, ,000 7,703,804 1,328,366 LESS: COST OF REVENUE Merchandise purchases 48,817 46,074 Event costs 2 10,060,486 5,763,162 10,109,303 5,809,236 GROSS LOSS (2,405,499) (4,480,870) Other income 1,295,705 4 LESS: ADMINISTRATIVE EXPENSES Advertising and promotion - 19,350 Agency fees - 9,670 Audit fee 48,800 56,000 Amortisation 26,972 28,050 Bank service charges 16,557 4,611 Building management fees 18,166 - Computer, internet and hosting 100,911 41,431 Copyright & Trade mark fees 2,600 - Depreciation 43,282 - Directors benefits 43,262 - Directors quarter expenses 438, ,161 Directors remuneration 510, ,723 Entertainment 110, ,772 Exchange difference 38,693 9,990 Filming & Editing 140,130 - Legal and professional fees 1,253, ,126 Licensing 191,584 5,626 Marketing & PR 137,727 - MPF contribution for directors 19,200 16,290 MPF contribution for staff 25,050 3,600 Multimedia material 7,545 6,958 Office supplies 130,328 24,675 Postage and delivery fees 11,147 5,615 Printing and reproduction 15, ,841 Rent and rates 153,231 2,000 Staff salaries and allowances 1,155,011 67,000 Storage expenses 67,200 45,350 Sundry expenses - 37,750 Telecom and utilities 159,723 48,010 Travel expenses 415,521 46,665 5,280,112 1,548,264 OTHER OPERATING Preliminary expenses written off - 14,500 LOSS BEFORE TAX (6,389,906) (6,043,630)

15 (For Management Purposes Only) EVENT COSTS FOR THE YEAR ENDED 31 ST DECEMBER 2011 APPENDIX 2 Year ended Period from to (Restated) Advertising 1,889, ,252 Agent & Manager fee 11,700 17,940 Awards and Prizes 123,529 - Depreciation - 23,800 Entertainment & meals 50,082 - Event Production 1,162, ,165 Event Staff 374, ,842 Fighter Fees 1,134, ,035 Fighter taxes 27,139 - Filming & Editing 3,086,111 1,211,211 Gym & sauna charges 3,360 - Insurance 90,512 22,677 Marketing and public relations 526, ,986 Medical expenses 3,571 - Platform set up MMA Ring & Skirt Expenses 141,020 62,217 Postage and delivery fees 63,044 - Printing and reproduction 57,022 - Ticket commissions - 17,609 Ticketing charges 17,626 50,659 Travel expenses 1,255,356 1,283,565 Venue Charges 42, ,204 10,060,486 5,763,162