UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
DC 20549
 
 FORM
10-K/A
 (Amendment
No. 1)
 
 x           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the fiscal year ended May 31, 2009
 
 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 No.
333-132429
 
 SOKO FITNESS & SPA
GROUP, INC.
 (Exact
Name of Registrant as Specified in Its Charter)
 
 Delaware
              
              80-0122921(State
      or Other Jurisdiction
                of  Incorporation
      or Organization)
              
              (I.R.S.
      Employer Identification No.)
 
 No.194,Guogeli
      Street, Harbin,
                Heilongjiang
      Province, China 150001
                (Address
      of Principal Executive Offices, including zip code)
              011-86-451-87702255
                (Registrant’s
      Telephone Number, Including Area
Code)
 
 Securities
registered under Section 12(b) of the Exchange Act:  None
 
 Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par
value
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.o
 
 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.
 YesþNoo
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Date 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).     o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions
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  oNon-accelerated
      filer    o(Do not
      check if a smaller reporting company)
              
              Smaller
      reporting company   x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 YesoNoþ
 
 On August
27, 2009, 17,000,000 shares of the registrant’s common stock were
outstanding.
 The
aggregate market value of the voting stock held by non-affiliates as of November
28, 2008 was approximately $6,400,000.
 
 Documents
Incorporated by Reference
 None
  
 
  EXPLANATORY
NOTE
 
 SOKO
Fitness & Spa Group, Inc (the “Company”) is filing this Amendment No. 1 to
its Annual Report on Form 10-K (“Form 10-K/A”) to amend its Annual Report on
Form 10-K for the fiscal year ended  May 31, 2009, which was
originally filed with the Securities and Exchange Commission (the “SEC”), on
August 28, 2009, in order to respond to certain comments of the staff to the
Securities and Exchange Commission (the "SEC"). Specifically, the Company
is making certain adjustments to its financial statements and its narrative
disclosure, including disclosure under the heading “Description of Business” and
the disclosure related to the Company’s internal controls and
procedures.
 
 TABLE
OF CONTENTS
 
 
 Page
      No.Cautionary
      Note on Forward Looking Statements
              1PART
      IItem
      1.
              Description
      of Business.
              2Item
      1A.
              Risk
      Factors
              16Item
      2.
              Description
      of Properties.
              25Item
      3.
              Legal
      Proceedings.
              25Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              25PART
      IIItem
      5.
              Market
      for Common Equity and Related Stockholder Matters and Issuer Purchase of
      Equity Securities.
              26Item
      6.
              Selected
      Financial Data.
              27Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              27Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              36Item
      8.
              Financial
      Statements and Supplementary Data.
              36Item
      9.
              Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure.
              36Item
      9A (T).
              Controls
      and Procedures.
              37Item
      9B.
              Other
      Information.
              38PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance.
              39Item
      11.
              Executive
      Compensation.
              41Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
              43Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              45Item
      14.
              Principal
      Accountant Fees and Services.
              46PART
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules.
              47
  
 CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
 
 
 The
statements contained in this Annual Report on Form 10-K/A that are not
historical facts are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our financial
condition, results of operations and business, which can be identified by the
use of forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties.  Management wishes to caution the reader of the
forward-looking statements that such statements, which are contained in this
annual report, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors, including, but
not limited to, economic, competitive, regulatory, technological, key employee,
and general business factors affecting our operations, markets, growth,
services, products, licenses and other factors discussed in our other filings
with the SEC, and that these statements are only estimates or
predictions.  No assurances can be given regarding the achievement of
future results, as actual results may differ materially as a result of risks
facing us, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events.
 
 These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements. Some of these
risks are described in “Risk Factors” in Item 1A of this annual
report.
 
 These risk
factors should be considered in connection with any subsequent written or oral
forward-looking statements that we or persons acting on our behalf may issue.
All written and oral forward looking statements made in connection with this
annual report that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary
statements.  Given these uncertainties, we caution investors not to
unduly rely on our forward-looking statements. We do not undertake any
obligation to review or confirm analysts’ expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events. Further, the information about our
intentions contained in this document is a statement of our intention as of the
date of this document and is based upon, among other things, the existing
regulatory environment, industry conditions, market conditions and prices, the
economy in general and our assumptions as of such date. We may change our
intentions, at any time and without notice, based upon any changes in such
factors, in our assumptions or otherwise.
 
  1
  PART
I
 
 Unless
otherwise provided in this Annual Report on Form 10-K/A, the terms “the
Company,” “the Registrant,” “SOKO” “we,” “us,” and “our” refer to SOKO Fitness
& Spa Group, Inc. together with its wholly-owned subsidiary Wealthlink Co.,
Ltd. (“Wealthlink”), its wholly-owned indirect subsidiary, Harbin Mege Union
Beauty Management Ltd. (“Mege Union”), Mege Union’s subsidiaries, and Mege
Union’s variable interest entity, Queen Group (as defined below).  For
purposes of this Annual Report on Form 10-K/A, the Queen Group is defined to
include Harbin Huang Emperor & Golden Gym Club Co. Ltd., Harbin Queen Beauty
Demonstration Center (consisting of three facilities, the Daowai Spa and two
branches, the Harbin Queen Beauty Demonstration Center Nangang Branch and Harbin
Queen Beauty Demonstration Center Xuanhua Branch), Harbin Daoli Queen
Demonstration Beauty Parlor, Harbin Xinyang Spa, Harbin SOKO Spa, Shenyang
Beauty Demonstration Center and Harbin Queen Beauty Vocational Skill Training
School.
 
 Item
1.  Description of Business.
 
 Business
 
 We are an
operator of distinctive fitness centers, beauty salons and spas in key cities in
Northeastern China.  We also operate one beauty school in Harbin,
China.
 
 We provide
programs, services and products that combine exercise, education and nutrition
to help our members and clients to achieve their fitness and beauty goals and to
help them to lead a healthy way of life and to achieve a richer
lifestyle.  Our beauty salons and spas provide services that
include, but are not limited to, skincare, hair dressing, manicure, pedicure,
body care, massage, and weight loss therapy.
 
 Our corporate
address is No.194, Guogeli Street, Harbin, Heilongjiang Province, China 150001
and our telephone number is 86-451-87702255.
 
 Background
and Organization
 
 SOKO was
incorporated as a Delaware corporation on September 9, 2004 under the name
American Business Holdings, Inc. as a holding vehicle to own and control a
textile and plastic packaging company in Central and East Africa. On September
12, 2004, the Company completed a transaction in which it purchased all of the
outstanding membership shares in Tissakin Ltd. (“Tissakin”), a Democratic
Republic of Congo corporation, so that Tissakin became the Company’s wholly
owned subsidiary. Through Tissakin, the Company was a manufacturer of bags for
packaging agricultural products in the Democratic Republic of
Congo.
  As described
in the “April 2008 Share Exchange and Financing Transactions” section below, on
April 11, 2008 , we
entered into a Share Exchange Agreement with Wealthlink Co., Ltd. (“Wealthlink”)
and the shareholders of Wealthlink (the “Wealthlink Shareholders”) pursuant to
which the Company acquired all of the outstanding shares of common stock of
Wealthlink from the Wealthlink Shareholders (“Share Exchange”). After the
completion of these transactions, we changed the Company’s name from American
Business Holdings, Inc. to SOKO Fitness & Spa Group, Inc.
 
 As a result
of the Share Exchange with Wealthlink, SOKO became the indirect owner of Mege
Union Beauty Management Ltd. (“Mege Union”), which is a company organized and
existing under the laws of the People’s Republic of China and a wholly-owned
subsidiary of Wealthlink.  SOKO and Wealthlink are holding
corporations and do not conduct any operations.  Mege Union currently
operates one facility directly and otherwise conducts its business through one
wholly (100%) owned and two majority (51%) owned operating subsidiaries as well
as through an association with seven individually-owned sole proprietorships
(one of which has two additional branches) comprising the variable interest
entity known as the “Queen Group.”
 
 The following
is a complete list of the operations of Mege Union as of May 31, 2009, together
with their recognized facility name and relationship to Mege Union or Wealthlink
and thereby to the Company:
 
 2
 Legal
      Name of Entity
              Commercial
      Name
              OwnershipFitness
      Centers
 Shenyang
      Letian Yoga Fitness Center
              Yoga
      Wave
              Owned
      51% by Mege Union and 49% by an unaffiliated third
partyShenyang
      Starway Fitness Co., Ltd.
              Yoga
      Wave II
              Owned
      51% by Mege Union and 49% by an unaffiliated third
partyHarbin
      Huang Emperor & Golden Gym Club Co., Ltd.
              SOKO
      International Fitness Center
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege Union
 
 Beauty
      Salons and SpasHarbin
      Mege Union Beauty
                Management
      Ltd.
              Legend
      Spa
              Owned
      100% by WealthlinkHarbin
      Tai Ai Beauty Co. Ltd.
              Lea
      Spa
              Owned
      100% by Mege UnionHarbin
      Queen Beauty Demonstration Center (“Harbin Demonstration
      Center”)
              Daowai
      Spa
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege UnionHarbin
      Queen Beauty Demonstration Center Nangang Branch
              Nangang
      Spa
              A
      branch of Harbin Demonstration Center and as such part of Queen
      GroupHarbin
      Queen Beauty Demonstration Center Xuanhua Branch
              Xuanhua
      Spa
              A
      branch of Harbin Demonstration Center and as such part of Queen
      GroupHarbin
      Daoli Queen Demonstration Beauty Parlor
              Daoli
      Spa
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege UnionHarbin
      Xinyang Spa
              (same
      as legal name)
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege UnionHarbin
      SOKO Spa
              (same
      as legal name)
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege UnionShenyang
      Queen Beauty Demonstration
                Co.
      Ltd.
              Shenyang
      Queen Beauty Spa
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege Union
 
 Beauty
      SchoolHarbin
      Queen Beauty Vocational Skill
                Training
      School
              (same
      as legal name)
              Part
      of Queen Group - owned 100% by Mr. Liu and operated under agreements
      between this entity and Mege Union
 
 In addition,
Mege Union currently has four new facilities under construction. The Da Qing
beauty salon and spa is scheduled to open in May 2010.  We have also
begun construction on three as yet unnamed facilities, one fitness center, a
yoga facility and a beauty salon and spa, all to be located in the Long Dian
Building in Harbin.  We currently anticipate that these facilities
will open to members and clients by the end of June 2010.
 
 For ease of
reference, unless it is necessary to the understanding of the context to
differentiate, throughout this report we will refer to all of above entities
collectively as the Company’s “subsidiaries” and, to the extent we refer to a
specific entity listed in the table above, we refer to such entity by its
commercial name.
 
 April
2008 Share Exchange and Financing Transactions
 
 On April 11,
2008 (the “Closing Date”), we entered into a Share Exchange Agreement with
Wealthlink and the Wealthlink Shareholders (including Mr. Tong Liu,
the Company’s current Chairman of the Board and Chief Executive Officer)
pursuant to which the Company issued an aggregate of 13,300,000 shares of common
stock of the Company to the Wealthlink Shareholders in exchange for all of the
outstanding shares of common stock of Wealthlink (“Share
Exchange”).
  3
 Concurrently
with the Share Exchange, the Company provided $400,000 to Mr. Tong Liu to
purchase 1,000,000 shares of Company common stock from Mr. Syed Idris Husain
(“Idris Husain”), then director and the principal stockholder of the Company,
and an aggregate of 1,575,000 shares of Company common stock from certain other
original shareholders of the Company, with the understanding that Mr. Liu would
immediately return these 2,575,000 shares to the Company for
cancellation.  Following the purchase of these 2,575,000 shares by Mr.
Tong Liu on the Closing Date, Mr. Liu immediately returned them to the Company
as agreed for cancellation.
 
 Also on the
Closing Date, the Company entered into a Consulting Agreement with Idris Husain
pursuant to which he was engaged to provide the Company with regular and
customary consulting advice as requested by the Company for a period of six
months from the Closing Date.  Pursuant to this Consulting Agreement,
the Company paid Idris Husain $300,000 in consideration of such services on the
Closing Date.
 
 In
consideration for structuring the Share Exchange with Wealthlink, SOKO agreed to
compensate E-Tech International, Inc. with (i) a retainer of $20,000 and (ii)
shares of common stock of the Company equal to two percent (2%) of total number
of shares outstanding after the Share Exchange with Wealthlink and the placement
of the Financing (as defined below) (340,000 shares) having an aggregate fair
value at the time of issuance (applying a per share fair value of $0.63 computed
for the shares issued in the Financing to the Purchasers described below) of
$214,200. Further, in consideration of services provided to the Company in
association with the consummation of the Share Exchange, an aggregate of 425,000
shares having an aggregate fair value at the time of issuance (applying a per
share fair value of $0.63 computed for the shares issued in the Financing to the
Purchasers described below) of $267,750 were issued to two other advisors
(85,000 shares to Sichenzia Ross Friedman Ference LLP and 340,000 shares to
Fortune Badge Limited) in lieu of cash compensation, totaling the number of
shares issued to the advisors in connection with the Share Exchange to 765,000
shares of common stock of the Company having an aggregate fair value at the time
of issuance (applying a per share fair value of $0.63 computed for the shares
issued in the Financing to the Purchasers described below) of
$481,950.
 
 Also, on the
Closing Date, immediately prior to and as a condition to the completion of the
Share Exchange, the Company entered into a Stock Purchase Agreement with each of
Syed Irfan Husain, the Company’s then President and Chief Executive Officer,
Idris Husain, and Verifica International, Ltd. (collectively, the “Buyers”).
Pursuant to this agreement, the Buyers purchased all issued and outstanding
shares of Tissakin in consideration of 79,000,000 shares of common stock of the
Company owned by the Buyers.
 
 Additionally,
on the Closing Date, SOKO entered into a Securities Purchase Agreement, Warrant,
Registration Rights Agreement and Lock-Up Agreement with three investors (the
“Purchasers”) for an aggregate of $2,000,000 (the “Financing”). On the Closing
Date, upon the terms and subject to the conditions set forth in the Securities
Purchase Agreement, SOKO sold, and the Purchasers purchased, in the aggregate,
2,000,000 shares of the Company’s common stock and warrants to purchase an
additional 2,000,000 shares. The warrants have an exercise price of $1.25 and
are exercisable at any time through the third anniversary of the Closing Date.
Additionally, each Purchaser’s ability to exercise the warrant is limited to the
extent such Purchaser’s beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) would exceed
4.99% of the SOKO’s outstanding common stock. From the Closing Date and through
the twelve-month anniversary of the Closing Date, certain SOKO shareholders
agreed not to sell any of their shares of the Company’s common
stock.
 
 By using the
Black-Scholes model to calculate the fair market value of the warrants issued to
the Purchasers in the Financing, SOKO computed that the effective fair market
value of each of the 2,000,000 share issued to the investors at the time of
issuance was $0.63 and that the effective fair market value of each warrant
share issued to the investors at the time of issuance was $0.37.
 
 In
consideration for acting as placement agent for the Financing, SOKO agreed to
compensate (a) E-Tech Securities Inc. with (i) a retainer of $30,000, (ii)
a cash placement fee equal to seven percent (7%) of the proceeds of the
Financing described below ($140,000) and (iii) warrants to purchase an
amount of securities equal to eight percent (8%) of the total shares issued to
the Purchasers (160,000 shares) having an aggregate fair value at the time of
issuance (applying a per warrant share fair value of $0.37 computed for the
warrant shares issued in the Financing to the Purchasers) of $59,200  and
(b) Luck Eagle Limited shares of common stock of the Company equal to three
percent (3%) of total number of shares outstanding after the Share Exchange with
Wealthlink and the placement of the Financing (510,000 shares) having an
aggregate fair value at the time of issuance (applying a per share the fair
value of $0.63 computed for the shares issued in the Financing to the
Purchasers) of $321,300. The warrants issued to E-Tech Securities Inc. have an
exercise price of $1.25 and are exercisable at any time through the third
anniversary of the Closing Date.
 
 4
  Prior to the
consummation of the foregoing transactions, the Company had 82,000,000 shares of
common stock outstanding.  As a result of the consummation of all of
the foregoing transactions, the following changes in the outstanding shares of
the Company were recorded:
 
 ·
              the
      Company reacquired 79,000,000 shares from its original shareholders in
      connection with the acquisition by such shareholders of Tissakin
      Ltd.;
 
 ·
              Mr.
      Liu acquired, with funds provided by the Company, 2,575,000 shares from
      certain original shareholders of the Company and returned such shares to
      the Company for cancellation; and
 
 ·
              an
      additional 425,000 shares remained held by certain original shareholders
      of the Company.
 
 From the
81,575,000 shares that were reacquired and acquired as described
above:
 
 ·
              the
      Company issued an additional 13,300,000 shares to Wealthlink Shareholders,
      including Mr. Liu;
 
 ·
              the
      Company issued an aggregate of 765,000 shares to several advisors of the
      Company for structuring the share exchange
  transaction;
 
 ·
              the
      Purchasers acquired 2,000,000 shares and warrants to purchase up to an
      additional 2,000,000 shares;
 
 ·
              the
      Company issued an aggregate of 510,000 shares to Luck Eagle for
      structuring the Financing;
 
 ·
              E-Tech
      Securities Inc. was issued a warrant to purchase up to 160,000 shares for
      structuring the Financing; and
 
 ·
              the
      Company cancelled 65,000,000
shares.
 
 As a result,
the Company now has 17,000,000 shares of common stock outstanding, which is
comprised of 16,575,000 shares issued in connection with the foregoing and
425,000 shares held by certain original shareholders of the
Company.
 
 Our
Business
 
 We
operate distinctive fitness centers, beauty
salons and spas in key cities in Northeastern China. Our beauty salons and spas
provide services that include, but are not limited to, skincare, hair dressing,
manicure, pedicure, body care, massage, and weight loss therapy. As of the date
of this Report, our fitness centers have approximately 13,000 members in total
and our nine beauty salons and spas are visited by approximately 19,500 clients
annually. We also operate one beauty school in Harbin, Heilongjiang Province,
China. Our goal is to provide programs, services and products that combine
exercise, education and nutrition to help our members and clients to achieve
their fitness and beauty goals and to help them to lead a healthy way of life
and to achieve a richer lifestyle.
 
 We have
established a marketing department which constantly conducts in depth market
research by conducting customer surveys and analyzing competitors, market
trends, fitness and beauty trends, sports participation statistics and sports
and beauty demographics.
 
 Today, urban
residents of large and medium-sized Chinese cities spend more time and money in
health and fitness clubs, to balance their work lives, seeking a scientific and
customized recipe for their physical fitness. For many individuals, the most
important thing in working out is to do exercises more scientifically and
healthily. Our internal statistics show that the members of our fitness
centers spend more than $700 per year. We believe that the rapid expansion of
urban middle class population and continuous economics growth in China will
provide the fitness industry with sustainable growth for the foreseeable
future.
 
 5
  The growth
potential in our key markets in Harbin and Shenyang is
substantial.  According to the 2008 China Fitness Club Industry Report
(“AASFP Report”) published by the Asian Academy for Sports and Fitness
Professionals, there were 2,770 fitness clubs in the 61 largest cities in
China.  According to the AASFP Report, Harbin has a population of
about ten million, with 50,250 individuals currently being served in 43 fitness
centers, resulting in a membership penetration rate (the proportion of the
fitness club members to the local population) of 0.51%, which currently makes it
the 18th largest fitness market in China.  Shenyang has a population
of about seven million, with 59,500 individuals currently being served in 47
fitness centers, resulting in a membership penetration rate of 0.84% and making
it currently the 14th largest fitness market in China.  We currently
operate one fitness center in Harbin (with about 8,000 members) and two fitness
centers in Shenyang (with an aggregate of about 5,000 members).  Based
on the statistics provided in the AASFP Report, in Harbin and Shenyang, SOKO’s
areas of operation, SOKO currently has market shares (the number of its members
in the respective city as a percentage of the total number of members in fitness
clubs in such city) of approximately 16% and approximately 8%,
respectively.
 
 Although
Harbin and Shenyang are deemed to be second tier cities, we see more
opportunities for our company in these markets than in other cities in China as
we experience less competition while the residents of Harbin and Shenyang
experience similar growth of their personal wealth as the residents in
first tier cities. With respect to the beauty and spa market, SOKO’s own
extensive market research by its marketing department shows that in its primary
market, Harbin, SOKO has a market share of approximately 25-30% of the overall
market, with a market share of about 50% of high end spas.   Even in
the current global economic downturn we find that our business is robust and the
spending habits of our members and clients are relative unaffected.
However, if Chinese economic conditions start to show deterioration and
the Chinese stimulation program fails to achieve its goal, we may see
a slowdown in our business. In the short-term, we face the challenge of
a pricing war with our competitors. Facing such challenges, SOKO will
continue its current strategy of focusing on high-end customers by maintaining
our quality of services and continuing to promote our brand name to maintain the
loyalty of our members and clients. SOKO promotes the concept of total wellness,
which seeks a balance of nutrition, exercises and way of living
rather than just fitness.  Currently, about 81% of the
members of our fitness centers renew their memberships and about 84% of our
beauty salon and spa clients return and book additional treatments.
  Although the
fitness and beauty markets are fast developing in China, such markets face
certain challenges. In China, the markets for fitness clubs and beauty salons
and spas are currently not segmented. While in the US different clubs position
themselves based on their target group (such as marital status, gender, age,
social status, pricing, etc.), in China currently most fitness clubs and beauty
salons and spas only compete on pricing.  We believe, however, that
market segmentation similar to the segmentation in the US will be the future.
The majority of customers of fitness clubs and beauty salons and spas in China
are well educated middle class residents with substantial disposable income
seeking to show their social status. As such they have developed certain tastes
and various demands and focus on building a certain lifestyle. In order to
succeed we therefore must analyze their demands carefully and position ourselves
accordingly.  As the market will become more and more segmented, to
gain considerable return in such segmented market will become more difficult and
will result slower development for our brand.
 
 As the market
entry costs are relatively low and new fitness clubs can attract considerable
customers by massive advertising before opening, SOKO faces competition from new
competitors. However, as the expectations of the customers are very high. Due to
a lack of customer service, meeting the demands of the customers and lack of
managerial skills, many customers become disappointed and choose to leave such
new competitors. In order to maintain our member and client base and attract new
customers, we always improve our services and engage in extensive market
research to find out more about our member and client needs, demands and
trends.
 
 6
 
  SOKO sees
loyal members and clients as a long term investment, whose value is
increasing over years.  While many competitors may be willing to enter
into a price war, SOKO positions itself as a high end fitness center and beauty
salon and spa operator that will not enter into a price war as a decrease
of membership fees and spa treatment fees for new customers would alienate
our existing members and clients. We rather work on building our brand image and
recognition as an operator of high end fitness centers and beauty salons and
spas that offers outstanding services and facilities and
fulfils our members’ and clients’ growing demands.  Although
SOKO’s membership fees and spa treatment fees are not cheap in the markets
where we operate, one of our main focuses is improving member and client
experience by constantly adding new facilities, equipment, courses and
treatments. Surveys
of our marketing department show that our members and clients appreciate our
constant increase of more quality services .
 
 The 2009-2012
Investment Analysis and Prospective Projection Report on China Beauty and Spa
Market points out that “[i]n 2008, China’s beauty and spa industry was seeing
high speed development with 23.8%, its total revenue reached RMB 320 billion,
and its profit rises with 37.9%, which is the highest growth rate among all
industries in China.  National employee number in beauty and spa
industry is about 11.2 million, which ranks number one in the industry. Until
2008, demand for beauty and spa products is beyond Japan and Korea and is on
first place in Asia while is third place in the world after the United States
and France.  As population base is very large in China, demand for
beauty and spa products is very large, too.  Based on per capita
demand, China beauty and spa industry has 15 to 18 times market space to develop
and future market is very optimistic.  Now China beauty and spa
industry is becoming the fifth hottest market after real estate, automobile,
computer and electronics, and tourism. As it has excellent industry development
prospect and space, tremendous commercial opportunity has arisen.”
  For the
fiscal year ended May 31, 2009, our beauty and spa operations accounted for
approximately 76% of our revenue, fitness operations accounted for
approximately 15% of our revenue and miscellaneous activities (including
our beauty school) accounted for the remaining 9% of our revenue. We
believe that this revenue breakdown will continue in the future. We generally
open our facilities to clients 12 hours a day, and 7 days a
week.  Currently, our fitness centers average 33,150 visits per month
and our beauty salons and spas average 21,000 visits per month.
 
 Our services
and products are tailored to high end customers who appreciate quality
and personal service from trained professionals.  This customer
base, coupled with the growing demand for health and fitness facilities in China
has positively impacted our revenues, irrespective of the recent slowdown in
China’s economy.  We do not anticipate that our business will be
materially negatively impacted by the current economic conditions in
China.  However, in the event that economic conditions continue to
deteriorate, our business may be affected.
 
 Plan
of Operations
 
 SOKO
currently holds all of the issued and outstanding capital of Wealthlink, which
holds all of the issued and outstanding capital of Mege Union.  SOKO
and Wealthlink are holding corporations and do not conduct any
operations.  Mege Union directly operates one facility and otherwise
conducts its business through one wholly (100%) owned and two majority
(51%) owned operating subsidiaries as well as through an association with seven
individually-owned sole proprietorships (one of which has two additional
branches) comprising the variable interest entity known as the Queen
Group.  Each of the entities that comprise the Queen Group is owned
independently by the Chairman, Mr. Liu.  Our affiliation with the
Queen Group is managed through several exclusive agreements between the Company
and each Queen Group entity.  As a result of our arrangements with
these entities, we effectively control each of the Queen Group entities and,
through them, we operate successful fitness centers and beauty salons and
spas.
  In addition,
Mege Union currently has one new beauty salon & spa facility under
construction. This facility will operate under the name Da Qing and is scheduled
to open in May 2010.  We plan to expand our brand through the
establishment of additional directly owned subsidiaries of Mege
Union.
 
 Through more
than 17 years of dedicated efforts, we have grown significantly in terms of the
number of facilities we operate and our facilities have become distinctive
destinations.  At the end of the fiscal year ended May 31, 2009, we
had approximately 13,000 members at our fitness centers and approximately 19,500
clients at our beauty salons and spas. While entry to our fitness centers is
limited to members only, clients of our beauty salons and spas do not have to
become members to receive treatments. The clients of our beauty salons and spas
can either purchase one time treatments or choose to purchase multiple
treatments at a discounted price. As an additional benefit, clients of our
beauty salons and spas who purchase multiple treatments receive additional
benefits such as private lockers, free showers and use of one of our luxury
treatment suites.  Although many of the members of our fitness centers
are also clients of our beauty salons and spas, membership in our fitness center
is not compulsory for being a client of our beauty salons and spas. The members
of our fitness centers enjoy professional fitness and yoga services and the
clients of our beauty salon and spa enjoy professional spa treatments provided
by our facilities.  The attrition rate in our fitness centers is
currently approximately 19%, and the attrition rate in our beauty salons
and spas (clients not returning after booking a single treatment or a multiple
treatments) is currently approximately 16%.  In the last three years,
the membership base of our fitness centers and the client base of our beauty
salons and spas purchasing multiple spa treatment developed as
follows:
  7
  May
      31,2007
              
              
              2008
              
              
              2009Fitness
      Memberships
              
              6,800
              
              
              10,000
              
              
              13,000New
      Memberships
              
              
              -
              
              
              
              3,540
              (1)
              
              
              4,890Old
      memberships that were renewed
              
              
              -
              
              
              
              6,460
              
              
              
              8,110Memberships
      that were not renewed
              
              
              -
              
              
              
              340
              
              
              
              1,890Beauty
      Salon and Spa Clients
              
              
              5,000
              
              
              
              10,000
              
              
              
              19,500New
      Clients
              
              
              -
              
              
              
              5,340
              
              
              
              11,068Recurring
      Clients that purchased additional treatments
              
              
              -
              
              
              
              4,660
              
              
              
              8,432Clients
      that did not purchase additional treatments
              
              
              -
              
              
              
              340
              
              
              
              1,568
 
 (1)
              Includes
      560 memberships that were signed up as a group prior to the end of
      the fiscal year ended May 31, 2007 but where the membership term
      began in the fiscal year ended May 31,
2008.
  We are
focused on generating revenue in three business segments: Professional Fitness
and Yoga, Beauty and Spa, and Beauty School operations. Our revenues are
generated through professional services, sales of products that complement and
supplement our services, membership fees and the tuition we charge our students.
We currently offer different levels of membership and price structures
for our fitness centers, beauty salons and spas and beauty
school.
 
 With respect
to our fitness centers, new and renewing members can choose among three-month,
twelve-month and twenty four-month memberships as well as long term memberships
for three and five years based on their individual needs. For our SOKO
International Fitness Center once a member signs up for the service and chooses
the membership term, the member is required to prepay the membership fee for the
entire term. Such prepaid membership fee is non-refundable if the member decides
to cancel the membership before the term expires.  No other fees have
to be paid by the member to maintain the membership. For our Yoga Wave and Yoga
Wave II fitness centers, each new and renewing member pays a non-refundable
initial membership fee plus a small administration fee to become a
member.  In addition to such fees, members of our Yoga Wave and Yoga
Wave II fitness centers pay monthly membership fees in order to maintain their
membership.  Members can choose to pay the monthly membership fee on a
month-by-month basis or to prepay, on a non-refundable basis, the monthly
membership fees for the entire membership term at a discounted rate depending on
the length of the membership term.  Currently approximately 60% of the
members of our Yoga Wave and Yoga Wave II fitness center prepay their monthly
membership fees.  Members of our fitness centers have unlimited access
to the facility and do not have to pay for any classes we offer. However, to the
extent they request the service of personal trainers, additional fees are paid
by the member for such services.
 
 There is
no membership for our beauty salons and spas and the clients of our beauty
salons and spas do not have to pay any upfront initiation fee or monthly service
fee in order to receive services.  Clients can receive services as
walk-ins and on appointment. They can choose between one-time treatments at our
regular rates and multiple treatments at discounted rates. If a client chooses
multiple treatments, the client is required to prepay upfront, on a
non-refundable basis, the entire discounted package price for both all
treatments and the products that will be used for those
treatments.  However, there is no time limit on when treatments can be
sought.  In addition, clients who purchase multiple treatments receive
additional benefits such as private lockers, free showers and use of one of our
luxury treatment suites.  All clients of our beauty salons and
spas have the opportunity to purchase additional products for at-home
use.
  8
 
 Our
beauty school offers beauty and spa professional training through different
forms of courses and workshops at different price levels.  The
duration of such courses and workshops is between one month and two years.
Students pay tuition for coursework and workshops at the beginning of the term
and, throughout the term they pay the additional cost of supplies and
products.  Tuition for our courses and workshops is determined based
on the level and the topic of a particular course or workshop, as well as on the
number of classes that make up a full course or workshop. Our beauty school
provides qualified beauticians for our beauty salon and spa operations as we
offer to the top 5% of graduates the opportunity to work in one of our beauty
salons and spas.  Approximately one third of our students board at our
beauty school for an extra fee.
 
 Our
working capital is used for operational costs, the development of new fitness
centers, debt service requirements and other capital expenditures necessary to
maintain existing facilities.  Historically, we have satisfied our
working capital needs through cash from operations and various short-term
borrowing arrangements.  Consistent with the general practice of our
industry in China, the bulk of our working capital is created through
non-refundable membership fees and prepaid non-refundable fees for
membership and/or treatments.  Membership fees of members who pay
monthly are recognized in the period in which facility access is provided. The
membership fees of our SOKO International Fitness Center and the membership fees
from members of our Yoga Wave and Yoga Wave II fitness centers who pay their
monthly membership fees up-front (both new membership sales and membership
renewals) as well the non-refundable initial membership fees payable by the
members of our Yoga Wave and Yoga Wave II fitness centers are amortized over the
period of the contract commencing with the first month of the new member
contract or renewal contract, as applicable.  All sales of prepaid spa
treatments are recorded as deferred revenue upon initiation and are recognized
proportionally when each treatment is provided.
 
 Our aim
is to provide programs, services, and products uniquely combined with exercise,
education, and nutrition to help lead our members into living a rich lifestyle
as well as achieving their fitness and beauty goals.   We have elected
to take advantage of the synergies among our core business lines,
locating some of our beauty salons and spas within our fitness center
facilities.  Shenyang Queen Beauty Spa opened in late October 2008 in
the same building as our Yoga Wave fitness center.  The continued
development of these overlapping opportunities has enabled us to enhance the
value of our services to clients and attracts new clients from one area to
another.
  We
believe that the health and fitness market in China provides an excellent
opportunity for growth and we are currently focused on taking advantage of this
opportunity to enhance the value of our brand through organic growth and
strategic acquisitions. We have been expanding our business throughout Northeast
China by building new facilities and updating and modifying our existing beauty
salons and spas. We believe a key to our growth lies in finding new venues in
thriving metropolitan areas and upscale real estate markets where we can target
our core demographic customer. We have recently begun tapping in to this market
with the opening of Shenyang Queen Beauty Spa. We will continue to look for
opportunities to expand our operations throughout the region.
 
 When we
open a new fitness center or beauty salon and spa, our fixed costs increase (as
do our variable costs to some degree), but without the membership revenue base
of a mature fitness center or beauty salon and spa. As a new fitness center or
beauty salon and spa increases its customer base, fixed costs are typically
spread over an increasing revenue base and its contribution tends to improve.
Based on our experience, revenues of a fitness center increase significantly
during its first four years of operation. By the end of the first full year of
operations, a fitness club has typically achieved modest membership contribution
and is cash flow positive. By the end of the second full year of operations, a
fitness center has typically generated significantly better membership
contribution as the member base grows with minimal incremental fixed operating
costs. By the end of the fourth full year of operations, a typical fitness
center has matured, with memberships at or near capacity. Our beauty salons
and spas have even better capital cycles. Based on our experience, by the end of
the first 6-8 months of operations, a beauty salon and spa has typically
achieved modest spa contribution and is cash flow positive. By the end of the
first full year of operations, a beauty salon and spa has typically generated
significantly better spa contribution as the member base grows with minimal
incremental fixed operating costs. Based on the historical performance of our
mature fitness centers and beauty salons and spas, we expect that, even in
difficult economic times, our newer fitness centers and beauty salons and spas
will grow significantly faster over the first two to three years than our
average mature fitness center and beauty salon and spa, while requiring
only a minimal level of additional working capital. We expect growth in revenues
to continue as recently opened fitness centers and beauty salons and spas
continue to mature. In addition, we expect growth in revenues as we implement
long-term strategic plans to expand the brand with new fitness centers and
beauty salons and spas in existing markets and selected new markets and with new
programs, services and products.
  9
 
 Consistent
with the general practice of the spa industry in China, in order to maximize its
working capital, the Company makes advances and deposits to suppliers, with whom
the Company has a long standing business relationship, for inventory purchases.
By doing so, we are able to maintain the relationship with the supplier and
purchase the inventory under the most favorable terms and discounts and in
certain cases become the exclusive agent of a product for the Northeast region
of China.
 
 Management
is committed to the growth of the Company through both organic growth and
strategic acquisitions.  Members of management research and assess our
existing facilities and systems to ensure that they are operating efficiently
and that local employees exemplify the professional skill and dedication that
has made SOKO a brand to be respected.  In evaluating potential growth
opportunities within our existing operations, management evaluates our existing
client base and the need for additional services to meet the lifestyle of our
clients and the community at large.
 
 Management
researches and reviews the demographic makeup of the areas in which we currently
operate, as well as other communities to determine the best way to utilize
Company resources to expand into new markets.  Our research focuses on
those areas that can support a facility that caters to upscale clientele
interested in personalized attention and superior service provided by dedicated
professionals.  Our marketing department has a well developed plan for
identifying and targeting potential geographic sites for business development
and expansion.  The tools used by our marketing professionals include
reviewing independent market and demographic research and census data, as well
as conducting visual inspections and obtaining written surveys of the population
in a target area.  The Company tracks the results of this research
against its business model to determine where or if an existing facility will be
upgraded or a new facility built in any proposed location.  Our
internal market research targets growth in both residential areas and business
districts among young professionals, business executives, government officials,
business owners and other upper middle class individuals.
  Our
market research has shown that women, particularly professional, upper middle
class women, are more likely to prepay for fitness and beauty services and are
less likely to forego these services in an economic downturn.  Based
on this information, we have targeted our growth and expansion in areas where
women are likely to want to use our services - in upper middle class residential
areas and business districts serving large corporations and thriving small
businesses.  We believe that this business profile provides the best
opportunity for growth in the Northeast region of China and is the least
susceptible to economic stress.
 
 This type
of research resulted in our opening of the Shenyang Queen Beauty Spa in late
October of 2008.
 
 The
Company may also utilize alternative methods of expanding its business in the
Northeast region of China, including partnering with existing spa owners or
establishing franchises.  These strategies are under consideration and
may be opportunistically developed in the future as deemed
appropriate.
 
 Coupled
with the desire to grow our business outlined above, we believe that it is key
to our ongoing success that all of our facilities be fitted with the most
sophisticated equipment and technology available. It is our intention to develop
and use 21st century technology to enhance the experience of each of our
clients. We have developed a website for the members of our fitness centers
that allows them to, among other things: consult with our team of professional
service providers, make appointments, hold on-line discussions with our staff
and other clients and review educational materials. We will continue to update
and change our technology as new operating systems and software are introduced
so we can remain ahead of the curve.
 
 10
 
 Services,
Programs and Products
 
 We offer
the following services and programs to our members.
  Professional
      Fitness
              
              Beauty
      Salon and Spa
              
              Beauty
      School●
      Cardiovascular, resistance and free- weight equipment;
                ●
      Professional training;
                ●
      Group Training;
                ●
      Comprehensive Fitness Testing;
                ●
      Educational Demonstrations;
                ●
      Nutrition Coaching;
                ●
      Weight Loss Programs;
                ●
      Remix;
                ●
      Fight-do;
                ●
      Body-Balance;
                ●Yoga;
      and
                ●
      Swimming
              
              ●
      Hair, Nail and Skin Care;
                ●
      Body Re-shaping;
                ●
      Whirlpool, Sauna and Steam rooms;
                ●Therapeutic
      Massage;
              
              ●
      Professional Skill Training; and
                ●
      Management Training
 
 We also
offer our members high-end beauty and skin care products, including: Albion;
Albion-EXG; Syma; La Colline; SELF’SHOW; and BDO product lines.
 
 We
typically experience the highest level of member activity at our fitness
facility and beauty salon and spa facilities during the hours of 11:00 a.m. –
01:00 p.m. and 05:00 p.m. – 07:00 p.m.
  As of the
end of our most recent fiscal year, our revenues from each of our business
segments were:
 
 Year
      Ended May 31,
              
              
              $
              
              %2009
              
              
              2008
              
              
              Change
              
              ChangeProfessional
      Services
              
              $
              11,284,644
              
              
              $
              10,296,518
              
              
              $
              988,126
              
              9.6
              %Sales
      of Product
              
              $
              3,624,257
              
              
              $
              1,229,363
              
              
              $
              2,394,894
              
              194.8
              %Membership
      Fees
              
              $
              2,977,462
              
              
              $
              1,498,503
              
              
              $
              1,478,959
              
              98.7
              %Tuition
              
              $
              1,682,744
              
              
              $
              938,746
              
              
              $
              743,998
              
              79.3
              %Total
      Revenues
              
              $
              19,569,108
              
              
              $
              13,963,130
              
              
              $
              5,605,978
              
              40.2
              %
 
  Acquisitions
of Lea Spa and Yoga Wave II
 
 On July
1, 2008, Mege Union completed the acquisition of 100% of the equity interest in
Lea Spa for RMB8, 000,000 (equivalent to $1,124,938 at the date of
execution of the acquisition agreement).  As a result, Lea Spa is a
direct subsidiary of Mege Union engaged in the business of owning and operating
a full service spa facility located in Sofitel Wanda Harbin Hotel.
 
 On May
31, 2009, Mege Union entered into an acquisition agreement with Starway Asia
Limited (“Starway”) to purchase 51% of the equity interest in Yoga Wave II,
fitness center located in the city of Shenyang, from Starway for RMB2,042,040
(approximately $0.3 million at the date of execution of the acquisition
agreement). The acquisition was completed in June 2009.
 The
Queen Group
 
 Each of
the Queen Group entities was established as an independent business in
1992.  The Queen Group entities became part of Mege Union in
2007.  The Queen Group’s revenue accounted for 73% and 86% of our
total revenue for fiscal years 2009 and 2008, respectively.  The Queen
Group consists of independently owned variable interest entities through which
we operate successful salons and fitness centers.  Our Chairman, Mr.
Liu, is the sole owner of each of the Queen Group entities.  The
entities comprising the Queen Group are:
 11
 
 ·
              Harbin
      Huang Emperor & Golden Gym Club Co., Ltd. (SOKO International Fitness
      Center);
 
 ·
              Harbin
      Daoli Queen Demonstration Beauty Parlor (Daoli
  Spa);
 
 ·
              Harbin
      Queen Beauty Demonstration Center (consisting of three facilities, the
      Daowai Spa and two branches, the Nangang Spa and the
      Xuanhua Spa);
 
 ·
              Harbin
      Xinyang Spa;
 
 ·
              Harbin
      SOKO Spa;
 
 ·
              Shenyang
      Queen Beauty Demonstration Co. Ltd. (Shenyang Queen Beauty Spa);
      and
 
 ·
              Harbin
      Queen Beauty Vocational Skill Training
School.
 
 Our
affiliation with the Queen Group is managed through several exclusive agreements
between the Company, each Queen Group entity and Mr. Liu.  These
agreements are:
 
 1.
              a
      Consulting Services Agreement between Mege Union and the Queen Group
      entity that provides for Mege Union to exclusively provide essential
      services relating to technology, human resources and research and
      development to the Queen Group entity in exchange for a Consulting
      Services Fee;2.
              an
      Operating Agreement between Mege Union and the Queen Group entity that
      prohibits the Queen Group entity from taking certain material actions or
      entering into material agreements, including assuming debt, selling or
      purchasing any assets or rights, using the entity’s assets or rights as
      collateral, or assigning some or all of the business to a third party,
      without the prior written consent of Mege Union;3.
              an
      Option Agreement among Mege Union, the Queen Group entity and the
      shareholders of such entity that grants Mege Union the right to acquire
      all of the shareholders’ interest in the Queen Group entity when, if and
      to the extent permitted by the laws of the People’s Republic of China and
      prohibits the shareholders from otherwise disposing of their interest in
      the Queen Group entity except with the prior written consent of Mege
      Union;4.
              an
      Equity Pledge Agreement among Mege Union, the Queen Group entity and the
      shareholders of such entity that grants Mege Union a pledged interest in
      all of the issued and outstanding interests of the Queen Group, including
      the right of Mege Union to vote such shares, as security for the
      performance of the Queen Group entity’s obligations under the Consulting
      Services Agreement and further; and5.
              a
      Proxy Agreement between Mege Union and the shareholders of the Queen Group
      entity that grants the board of directors of Mege Union an irrevocable
      proxy for the maximum period permitted by law, to vote the shareholders
      shares of the Queen Group entity in such manner and for or against such
      proposals as the board may
determine.
 
 Although
each of the Queen Group entities has its own set of agreements with us, for each
entity the terms and conditions of the agreements are identical to the forms
filed as Exhibit 10.9 through 10.13 to this Annual Report on Form
10-K/A.  As a result of the understandings and agreements provided in
the foregoing documents, we effectively control each of the Queen Group
entities.   Except as set forth in these agreements, Mr. Liu is not
entitled to any other compensation in connection with his ownership of the Queen
Group entities.
 
 Although
the Consulting Services Agreement gives Queen Group the right to terminate,
cancel or revoke the agreement in certain instances, we believe such would
neither be in the interest of Mr. Liu as a shareholder of the Company nor in his
interest as our Chairman and officer. The Company therefore believes that it
currently does not need additional safeguards to ensure that the termination
provision of the Consulting Services Agreement is not triggered.  As
of May 31, 2009, there was no existing indebtedness of the Queen
Group.
  12
  Key
Characteristics
 
 Combined
with 17 years of knowledge and experience of beauty salon and spa operations,
advanced western management, and habits of Chinese consumers, we have developed
a localized managing system that supports both our current fitness center and
beauty salon and spa operations as well, we believe, as our future expansion
potential.
 
 Our
internal management systems address the following areas:
 
 ●
              Working
      environment;●
              Equipment;●
              Research
      & Development;●
              Employee
      benefits; and●
              Employee
      training (professional courtesy).
  Additionally,
we have dedicated managers who focus on the following external areas of
management control:
 
 ●
              Marketing;●
              Financing;●
              Logistic
      control; and●
              Public
      relations.
  We have
instituted a number of incentive plans that are designed to attract and motivate
our members and clients, employees and strategic partners, leading to more solid
relationships and enhanced customer loyalty.
 
 We have
set our focus on serving wealthy individuals with premium consumption powers
(mid- to upper-tier consumer group).  We have also set our consumer
focus on corporate clients who are willing to compensate their employees with
memberships in our facilities as extra benefits. However, currently we are not
reliant on corporate clients. As of May 31, 2009, corporate clients
contributed approximately 2.8% to our total revenue.
 
 Marketing
Strategy
 
 We
strategically target the following individual customer groups to differentiate
ourselves from our competitors:
 
 ●
              Management level group from
      various enterprises.   This customer group has the
      highest demands on their lifestyle and tastes as well as the awareness of
      their appearances and health
conditions.
 
 ●
              White-collar group from
      various enterprises.  This customer group tends to be the
      most active group of population in pursuit of the newest trends in fashion
      and sport activities.  They also have high quality lifestyles
      and are considered one of the strongest consumption power
      groups.
 
 ●
              Government
      group.  This customer group tends to contain the more
      senior portion of the population which has comparatively higher demands on
      their conditions.
 
 ●
              Foreigner
      group.  This customer group is the mature-stage-consumer
      group who usually has higher incentives and initiatives to become the
      member of beauty salon and spa and fitness
  center.
  13
  We not
only engage in the traditional marketing tools to advertise in the market space,
but also develop mutual beneficial platforms through our institutional customers
to further enhance our marketing strategy:
  ●
              DirectTelemarketing.  By
      having access to the contact information of wealthy individuals and
      households, SOKO believes direct telemarketing is one of most effective
      marketing to reach its desired target customers.  Our partner
      for information sharing in this sector is China Mobile
      Ltd.
 ●
              EventSponsorship.  By
      engaging the major event sponsorships with other reputable institutes, we
      have further increased our market awareness and exposure within the
      wealthy individual and household communities.  Our partner for
      information sharing in this sector is Hiersun Diamond
      Group.
 
 ●
              JointSales.  We
      jointly sell our memberships with third party institutes to efficiently
      utilize the marketing effects of other brands and eventually to achieve
      mutual benefits by all parties. Some of our partners for information
      sharing in this sector include China Everbright Bank, Shanghai Pudong
      Development Bank, China Southern Airline and Songlei Commercial
      Group.
 
 ●
              TraditionalMedia.   We
      also reach our target customers through traditional media channels such as
      television, magazine, radio and
newspapers.
 
 With
respect to the information sharing partnerships referenced above, our partners
provide us with VIP customer lists for target marketing. In return, we provide
discount group membership for our partners as part of their employee benefit
plans. In addition, we engage in promotional events with shopping malls, and
provide some shops with beauty salon and spa discounts for their
customers.
 
 Competition
 
 China’s
health and fitness market is highly segmented and is still at its infant
stage. No market leader has emerged in China unlike most of the mature markets
in the West or other industrially-advanced countries. Currently, no single
company in China counts for more than 3% of total nationwide market share.
Management believes that due to the change in consumer taste, health and fitness
is no longer a “hobby,” and that consumer focus on the health and
fitness market has shifted to quality and professionalism of service
instead of pricing, as was the case in the past.
  Trademarks
 
 We
currently hold registered trademarks for the following names and
symbols:
  
  14
  Government
Regulation
 
 Physical
Exercise:
 
 According
to “China Law on Physical Culture and Sport”, the administrative department
for physical culture and sports under the State Council is in charge of the
operation of physical culture and sports throughout China. Other relevant
departments under Chinese State Council administers the operation of physical
culture and sports within their respective functions and powers.
 
 China
practices a skill-grading system for social sports instructors, who shall guide
social sports activities. The social sports instructors are classified into
4 categories, Class III, Class II, Class I and State Level. Each Class of the
instructors must be trained accordingly. State Level instructors (the highest
level) must have minimum five years relevant experience.
 
 According
to “Heilongjiang Provincial Administration Regulation in respect of Physical
Exercise Related Business,” the physical exercise related business is
qualified with following conditions: (a). proper facilities and buildings in
satisfactory with the necessary requirement of business operation, security,
fire protection, environmental protection and hygiene; (b). necessary registered
capital; (c). the exercising facilities and instruments in compliance with the
national standard stipulated by competent institution; (d). the trained social
sports instructors or other staffs with proper qualification for physical
exercising guidance.
 
 Beauty
Industry
 
 According to “Interim Measures for the Administration of Beauty Treatment and
Hairdressing Industry” (the “Beauty Order”) issued by Ministry of Commerce, The
Ministry of Commerce is in charge of the work of national beauty treatment
and hairdressing industry.
 
 Pursuant
to the Beauty Order, the business operators undertaking business activities of
beauty treatment and hairdressing shall meet the following basic conditions:
(1). having capacity for bearing civil liabilities; (2). having a fixed business
place; (3). having establishment and facilities accommodated to the service
items they manage; and (4). having professional technicians who have obtained
the corresponding qualification certificates
 
 The beauticians, hairdressers and other professional technicians who undertake
beauty treatment and hairdressing services must obtain the qualification
certificate issued by the relevant governmental department of China. The
business operator of beauty treatment and hairdressing must place its business
license, hygienic license, service items and charging standards in its business
premises for public viewing.
 
 The
business premises for beauty treatment and hairdressing must comply with the
relevant sanitation provisions and standards and have the corresponding sanitary
and sterilizing facilities and measures. The practitioner must be subject
to the physical check-up of the administrative department of public health and
can take up an occupation with health certificate.
 
 Our
management believes that we are compliant with all relevant applicable
government regulations, and that such regulations do not materially impact our
operations.
 
 Employees
 
 As of May
31, 2009, we had 800 full-time employees. Of these employees, 290 employees
are employed by Mege Union and 510 employees are employed by the Queen
Group. Our employees work in the functional units as indicated in the table
below.
 
 Department
              
              Total
      NumberManagement
              
              
              30All
      administration
              
              
              70Sales
              
              
              148Beauty
      and Spa Professionals
              
              
              456Fitness
      Professionals
              
              
              96
 
 We have
not experienced any work stoppages and we consider relations with our employees
to be good.
 
 15
 
 Item
1A.  Risk Factors.
 
 You
should carefully consider the risks described below before making an investment
decision. The risks described below are not the only ones facing our company and
some risks and uncertainties are inherent in our business. Additional risks not
presently known to us or that we currently believe are immaterial may also
impair our business operations. Our business could be harmed by any of these
risks. The following sets forth factors related to our business, operations,
financial position or future financial performance or cash flows which could
cause an investment in our securities to decline and result in a loss. In
assessing these risks, you should also refer to the other information contained
in this annual report, including our consolidated financial statements and
related notes.
 
 Risks
Related to Our Business and Industry
 
 We
face competition from other health and fitness facilities and
service-providers.
 
 We face
formidable competition in every aspect of our business, and particularly from
other health and fitness providers seeking to attain clientele. Currently, we
consider our primary competitor to be Weider-Tera.  Weider-Tera can
use its resources in a variety of competitive ways, including by making
acquisitions, investing more aggressively in development and competing more
aggressively for marketing and advertisers. If our competitors are successful in
providing similar or better facilities, services and products, we could
experience a significant decline in clientele or members. Any such decline could
negatively affect our revenues.
 
 Our
operating results may fluctuate, which makes our results difficult to predict
and could cause our results to fall short of expectations.
 
 Our
operating results may fluctuate as a result of a number of factors, many outside
of our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not rely on our
past results as an indication of our future performance. Our quarterly,
year-to-date and annual expenses as a percentage of our revenues may differ
significantly from our historical or projected rates. Our operating results in
future quarters may fall below expectations. Any of these events could cause our
stock price to fall. Each of the risk factors listed in Risk Factors, and the
following factors may affect our operating results:
 
 ·
              Our
      ability to continue to attract clientele to our health, fitness and spa
      facilities;
 
 ·
              Our
      ability to generate revenue from our members and clientele for the
      products and services we offer;
 
 ·
              Our
      ability to attract advertisers to our
programs;
 
 ·
              The
      amount and timing of operating costs and capital expenditures related to
      the maintenance and expansion of our businesses, operations and
      infrastructure;
 
 ·
              Our
      focus on long-term goals over short-term
  results;
 
 ·
              Our
      ability to keep our facilities operational at a reasonable cost;
      and
 
 ·
              Our
      ability to generate revenue from services in which we have invested
      considerable time and resources.
 
 Because
our business is changing and evolving, our historical operating results may not
be useful to you in predicting our future operating results.
 
 16
 
 If
we do not continue to innovate and provide products and services that are useful
to users, we may not remain competitive, and our revenues and operating results
could suffer.
 
 Our
success depends on providing products and services that make our members and
clientele in the health and fitness community enjoy a more satisfying and
enjoyable experience. Our competitors are constantly developing new facilities,
products and services. As a result, we must continue to  enhance our
facilities and our existing products and services and introduce new products and
services that people can enjoy and use. We spent approximately $100,000 and
$130,000, on research and development in fiscal years 2008 and 2009,
respectively.  If we are unable to provide quality products and
services, then our clients and members may become dissatisfied and move to a
competitor’s products and services. Our operating results would also suffer if
our innovations are not responsive to the needs of our clients and
members.
 
 Our
business and operations are experiencing growth. If we fail to effectively
manage our growth, by managing our employees and operations and developing our
clientele, our business and operating results could be harmed.
 
 We have
experienced, and continue to experience, growth in our operations. This has
placed, and will continue to place, demands on our management, as well as on our
operational and financial infrastructure. If we do not effectively manage our
growth, the quality of our products and services could suffer, which could
negatively affect our brand and operating results. To effectively manage this
growth, we need to continue to improve our operational, financial and management
controls and our reporting systems and procedures. These systems enhancements
and improvements will require significant capital expenditures and management
resources. Failure to implement these improvements could hurt our ability to
manage our growth and our financial position.
 
 We
rely on highly skilled personnel and, if we are unable to retain or motivate key
personnel or hire qualified personnel, we may not be able to grow
effectively.
 
 Our
performance largely depends on the talents and efforts of highly skilled
individuals, including trainers and managers. Our future success depends on our
continuing ability to identify, hire, develop, motivate and retain highly
skilled personnel for all areas of our organization. Our continued ability to
compete effectively depends on our ability to attract new personal fitness
trainers, skilled members of the health and fitness community, and to retain and
motivate our existing contractors.
 
 We
may need additional capital to execute our business plan and fund operations and
may not be able to obtain such capital on acceptable terms or at
all.
 
 Capital
requirements are difficult to plan in our rapidly changing
industry.  Although we currently expect to have sufficient funding for
the next 12 months, we expect that we will need additional capital to fund our
future growth.
 
 Our
ability to obtain additional capital on acceptable terms or at all is subject to
a variety of uncertainties, including:
 
 ·
              Investors’
      perceptions of, and demand for, companies in our
  industry;
 
 ·
              Investors’
      perceptions of, and demand for, companies operating in
    China;
 
 ·
              Conditions
      of the U.S. and other capital markets in which we may seek to raise
      funds;
 
 ·
              Our
      future results of operations, financial condition and cash
      flows;
 
 ·
              Governmental
      regulation of foreign investment in companies in particular
      countries;
 
 ·
              Economic,
      political and other conditions in the United States, China, and other
      countries; and
 
 ·
              Governmental
      policies relating to foreign currency
  borrowings.
 
 17
 
 We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. There is no
assurance that we will be successful in locating a suitable financing
transaction in a timely fashion or at all. In addition, there is no assurance
that we will be successful in obtaining the capital we require by any other
means. Future financings through equity investments are likely to be dilutive to
our existing stockholders. Also, the terms of securities we may issue in future
capital transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
 
 If we
cannot raise additional funds on favorable terms or at all, we may not be able
to carry out all or parts of our strategy to maintain our growth and
competitiveness or to fund our operations.  If the amount of capital
we are able to raise from financing activities, together with our revenues from
operations, is not sufficient to satisfy our capital needs, even to the extent
that we reduce our operations accordingly, we may be required to cease
operations.
 
 We
will incur significant costs as a result of operating as a public company, our
management will be required to devote substantial time to new compliance
initiatives.
 
 While we
are a public company, our compliance costs to date have not been substantial in
light of our limited operations.  SOKO has never operated as a public
company.  As a public company with substantial operations, we will
incur increased legal, accounting and other expenses.  The costs of
preparing and filing annual and quarterly reports, proxy statements and other
information with the SEC and furnishing audited reports to stockholders is
time-consuming and costly.
 
 It will
also be time-consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”).  Certain members of our management
have limited or no experience operating a company whose securities are traded or
listed on an exchange, nor with SEC rules and requirements, including SEC
reporting practices and requirements that are applicable to a publicly traded
company.  We will need to recruit, hire, train and retain additional
financial reporting, internal controls and other personnel in order to develop
and implement appropriate internal controls and reporting
procedures.  If we are unable to comply with the internal controls
requirements of the Sarbanes-Oxley Act, we may not be able to obtain the
independent accountant certifications required by the Sarbanes-Oxley
Act.
 
 If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent fraud.
Any inability to report and file our financial results accurately and timely
could harm our business and adversely impact the trading price of our common
stock.
 
 We are
required to establish and maintain internal controls over financial reporting,
disclosure controls, and to comply with other requirements of the Sarbanes-Oxley
Act and the rules promulgated by the SEC thereunder. Our management, including
our Chief Executive Officer and Chief Financial Officer, cannot guarantee that
our internal controls and disclosure controls will prevent all possible errors
or all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control system must reflect
the fact that there are resource constraints and the benefit of controls must be
relative to their costs. Because of the inherent limitations in all control
systems, no system of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within SOKO have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake.
Further, controls can be circumvented by individual acts of some persons, by
collusion of two or more persons, or by management override of the controls. The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. Over time, a control may become inadequate because of changes in
conditions or the degree of compliance with policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be
detected.
 
 18
 
 New
rules, including those contained in and issued under the Sarbanes-Oxley Act, may
make it difficult for us to retain or attract qualified officers and directors,
which could adversely affect the management of our business and our ability to
obtain or retain listing of our common stock.
 
 We may be
unable to attract and retain those qualified officers, directors and members of
board of directors committees required to provide for our effective management
because of the rules and regulations that govern publicly held companies,
including, but not limited to, certifications by principal executive officers.
The perceived personal risk associated with the Sarbanes-Oxley Act may deter
qualified individuals from accepting roles as directors and executive
officers.
 
 Further,
some of these recent changes heighten the requirements for board or committee
membership, particularly with respect to an individual’s independence and level
of experience in finance and accounting matters. We may have difficulty
attracting and retaining directors with the requisite qualifications. If we are
unable to attract and retain qualified officers and directors, the management of
our business and our ability to obtain or retain the listing of our common stock
on any stock exchange (assuming we are successful in obtaining such listing)
could be adversely affected.
 
 We
are a holding company that depends on cash flow from Mege Union and Queen Group
to meet our obligations.
 
 After the
consummation of the Share Exchange, we became a holding company with no material
assets other than the stock of Mege Union and Queen
Group.  Accordingly, all our operations are conducted by Mege Union
and Queen Group.  We currently expect that the earnings and cash flow
of our subsidiary will primarily be retained and used by us in its
operations.
 
 Risks
Related to Conducting Our Business in China
 
 We
are subject to international economic and political risks over which we have
little or no control and may be unable to alter our business practice in time to
avoid the possibility of reduced revenues.
 
 Our
business is conducted in China. Doing business outside the United States,
particularly in China, subjects us to various risks including changing economic
and political conditions, major work stoppages, exchange controls, currency
fluctuations, armed conflicts and unexpected changes in United States and
foreign laws relating to tariffs, trade restrictions, transportation
regulations, foreign investments and taxation. We have no control over most of
these risks and may be unable to anticipate changes in international economic
and political conditions. Therefore, we may be unable to alter our business
practice in time to avoid the possibility of reduced revenues.
 
 China’s
economic policies could affect our business.
 
 Generally,
all of our assets are located in China and our revenue is derived from our
operations in China. Accordingly, our results of operations and prospects are
subject, to a significant extent, on the economic, political and legal
developments in China.
 
 While
China’s economy has experienced significant growth in the past twenty years,
such growth has been uneven, both geographically and among various sectors of
the economy. China’s government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of China, but they may also have a negative effect
on us. For example, operating results and financial condition may be adversely
affected by the government control over capital investments or changes in tax
regulations. The economy of China has been changing from a planned economy to a
more market-oriented economy. In recent years China government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets, and the establishment of
corporate governance in business enterprises; however, a substantial portion of
productive assets in China are still owned by our government. In addition, China
government continues to play a significant role in regulating industry
development by imposing industrial policies. It also exercises significant
control over China’s economic growth through the allocation of resources, the
control of payment of foreign currency-denominated obligations, the setting of
monetary policy and the provision of preferential treatment to particular
industries or companies.
 
 19
 
 We
may have difficulty establishing adequate management, legal and financial
controls in China.
 
 China
historically has not adopted a Western style of management and financial
reporting concepts and practices, as well as in modern banking, computer and
other control systems. We may have difficulty in hiring and retaining a
sufficient number of qualified employees to work in China. As a result of these
factors, we may experience difficulty in establishing management, legal and
financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.
 
 Our
bank accounts are not insured or protected against loss.
 
 We
maintain our cash with various banks and trust companies located in China. Our
cash accounts are not insured or otherwise protected. Should any bank or trust
company holding our cash deposits become insolvent, or if we are otherwise
unable to withdraw funds, we would lose the cash on deposit with that particular
bank or trust company.
 
 As
we have limited business insurance coverage in China, any loss which we suffer
may not be insured or may be insured to only a limited extent.
 
 The
insurance industry in China is still in an early state of development and
insurance companies located in China offer limited business insurance products.
In the event of damage or loss to our properties, our insurance may not provide
as much coverage as if we were insured by insurance companies in the United
States.
 
 We
may face judicial corruption in China.
 
 Another
obstacle to foreign investment in China is corruption. There is no assurance
that we will be able to obtain recourse in any legal disputes with suppliers,
customers or other parties with whom we conduct business, if desired, through
China’s poorly developed and sometimes corrupt judicial systems.
 
 If
relations between the United States and China worsen, investors may be unwilling
to hold or buy our stock and our stock price may decrease.
 
 At
various times during recent years, the United States and China have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and China, whether or not directly
related to our business, could reduce the price of our common
stock.
 
 The
government of China could change our policies toward private enterprise or even
nationalize or expropriate private enterprises, which could result in the total
loss of our and your investment.
 
 Our
business is subject to significant political and economic uncertainties and may
be affected by political, economic and social developments in China. Over the
past several years, the government of China has pursued economic reform policies
including the encouragement of private economic activity and greater economic
decentralization. The government of China may not continue to pursue these
policies or may significantly alter them to our detriment from time to time with
little, if any, prior notice. Changes in policies, laws and regulations or in
their interpretation or the imposition of confiscatory taxation, restrictions on
currency conversion, restrictions or prohibitions on dividend payments to
stockholders, or devaluations of currency could cause a decline in the price of
our common stock, should a market for our common stock ever develop.
Nationalization or expropriation could even result in the total loss of your
investment.
 
 20
 
 The
nature and application of many laws of China create an uncertain environment for
business operations and they could have a negative effect on us.
 
 The legal
system in China is a civil law system. Unlike the common law system, the civil
law system is based on written statutes and decided legal cases have little
value as precedents. In 1979, China began to promulgate a comprehensive system
of laws and has since introduced many laws and regulations to provide general
guidance on economic and business practices in China and to regulate foreign
investment. Progress has been made in the promulgation of laws and regulations
dealing with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. The promulgation of new laws,
changes of existing laws and the abrogation of local regulations by national
laws could cause a decline in the price of our common stock. Since these laws,
regulations and legal requirements are relatively recent, their interpretation
and enforcement involve significant uncertainty.
 
 We
face risks associated with currency exchange rate fluctuations.
 
 Although
we use the United States dollar for financial reporting purposes, all of the
transactions effected by our operating subsidiaries are denominated in RMB. The
value of the RMB fluctuates and is subject to changes in China’s political and
economic conditions. We do not currently engage in hedging activities to protect
against foreign currency risks. Even if we chose to engage in such hedging
activates, we may not be able to do so effectively. Future movements in the
exchange rate of the RMB could adversely affect our financial condition as we
may suffer financial losses when transferring money raised outside of China into
the country or paying vendors for services performed outside of
China.
 
 It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers, directors and assets based in China.
 
 As our
executive officers and several of our directors, including the chairman of our
Board of Directors, are Chinese citizens, it may be difficult, if not
impossible, to acquire jurisdiction over these persons in the event a lawsuit is
initiated against us and/or our officers and directors by a stockholder or group
of stockholders in the United States. Also, because our operating subsidiaries
and assets are located in China, it may be extremely difficult or impossible for
you to access those assets to enforce judgments rendered against us or our
directors or executive offices by United States courts. In addition, the courts
in China may not permit the enforcement of judgments arising out of United
States federal and state corporate, securities or similar laws. Accordingly,
United States investors may not be able to enforce judgments against us for
violation of United States securities laws.
 
 We
may face obstacles from the communist system in China.
 
 Foreign
companies conducting operations in China face significant political, economic
and legal risks. The Communist regime in China, including a cumbersome
bureaucracy, may hinder Western investment.
 
 Capital
outflow policies in China may hamper our ability to declare and pay dividends to
our shareholders.
 
 China has
adopted currency and capital transfer regulations. These regulations may require
us to comply with complex regulations for the movement of capital. Although our
management believes that we will be in compliance with these regulations, we may
not be able to pay dividends to our shareholders outside of China if these
regulations or the interpretations of them by courts or regulatory agencies
change. In addition, under current China law, we must retain a reserve equal to
10 percent of net income after taxes, not to exceed 50 percent of registered
capital. Accordingly, this reserve will not be available to be distributed as
dividends to our shareholders. We presently do not intend to pay dividends in
the foreseeable future. Our management intends to follow a policy of retaining
all of our earnings to finance the development and execution of our strategy and
the expansion of our business.
 
 Risks
Related to Ownership of our Common Stock
 
 Our
common stock price is subject to significant volatility, which could result in
substantial losses for investors.
  21
 
 Prices
for our shares are determined in the marketplace and may accordingly be
influenced by many factors, including, but not limited to:
 
 ·
              the
      depth and liquidity of the market for the
  shares;
 
 ·
              quarter-to-quarter
      variations in our operating
results;
 
 ·
              announcements
      about our performance as well as the announcements of our competitors
      about the performance of their
businesses;
 
 ·
              investors’
      evaluations of our future prospects and the food industry
      generally;
 
 ·
              changes
      in earnings estimates by, or failure to meet the expectations of,
      securities analysts;
 
 ·
              our
      dividend policy; and
 
 ·
              general
      economic and market conditions.
 
 In
addition, the stock market often experiences significant price fluctuations that
are unrelated to the operating performance of the specific companies whose stock
is traded. These market fluctuations could adversely affect the trading price of
our shares.
 
 The price
at which investors purchase shares of our common stock may not be indicative of
the price that will prevail in the trading market. Investors may be unable to
sell their shares of common stock at or above their purchase price, which may
result in substantial losses.
 
 Shares
of our common stock lack a significant trading market.
 
 Shares of
our common stock are not eligible as yet for trading on any national securities
exchange. Our common stock is eligible for quotation in the over-the-counter
market on the Over-The-Counter Bulletin Board (“OTCBB”) pursuant to Rule 15c2-11
of the Exchange Act. This market tends to be highly illiquid. There can be no
assurance that an active trading market in our common stock will develop, or if
such a market develops, that it will be sustained. In addition, there is a
greater chance for market volatility for securities that trade on the OTCBB as
opposed to securities that trade on a national exchange or quotation system.
This volatility may be caused by a variety of factors, including the lack of
readily available quotations, the absence of consistent administrative
supervision of “bid” and “ask” quotations, and generally lower trading
volume.
 
 Future
sales of shares of our common stock by our stockholders could cause our stock
price to decline.
 
 We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of common stock for sale will have on the market
price prevailing from time to time. Sales of shares of our common stock in the
public market covered under an effective registration statement, or the
perception that those sales may occur, could cause the trading price of our
common stock to decrease or to be lower than it might be in the absence of those
sales or perceptions.
 
 We
may issue additional shares of our capital stock or debt securities to raise
capital or complete acquisitions, which would reduce the equity interest of our
stockholders.
 
 Our
certificate of incorporation authorizes the issuance of up to 500,000,000 shares
of common stock, par value $.001 per share, and 10,000,000 shares of preferred
stock with $.001 par value. There are currently 17,000,000 shares of our common
stock and no shares of our preferred stock outstanding. An additional
2,160,000 shares of common stock are reserved for issuance upon the exercise of
outstanding warrants and 110,000 shares of common stock are reserved for
issuance upon the exercise of outstanding stock options.  As a result,
there are approximately 480,730,000 authorized and unissued shares of our common
stock and 10,000,000 shares of our preferred stock which have not been reserved
and are available for future issuance. Although we have no commitments as of the
date of this offering to issue our securities, we may issue a substantial number
of additional shares of our securities to complete a business combination or to
raise capital. The issuance of additional shares of our securities:
  22
 
 
              may
      significantly reduce the equity interest of investors in this offering;
      and
 
 
              may
      adversely affect prevailing market prices for our common
      stock.
 
 
 The
application of the “penny stock” rules could adversely affect the market price
of our common stock and increase your transaction costs to sell those
shares.
 
 Holders
of shares of our common stock may have difficulty selling those shares because
our common stock will probably be subject to the penny stock rules. Shares of
our common stock are subject to rules adopted by the SEC that regulate
broker-dealer practices in connection with transaction in “penny stocks.” Penny
stocks are generally equity securities with a price of less than $5.00 which are
not registered on a national securities exchange, provided that current price
and volume information with respect to transaction in those securities is
provided by the exchange or system. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which contains the following:
 
 •           a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading;
  •           a
description of the broker’s or dealer’s duties to the customer and of the rights
and remedies available to the customer with respect to violation to such duties
or other requirements of securities laws;
  •           a
brief, clear, narrative description of a dealer market, including “bid” and
“ask” prices for penny stocks and the significance of the spread between the
“bid” and “ask” price;
  •           a
toll-free telephone number for inquiries on disciplinary actions;
  •           definitions
of significant terms in the disclosure document or in the conduct of trading in
penny stocks; and
  •           such
other information and is in such form (including language, type, size and
format), as the SEC shall require by rule or regulation.
  Prior to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer with the following:
 
 •           the
bid and offer quotations for the penny stock;
  •           the
compensation of the broker-dealer and our salesperson in the
transaction;
  •           the
number of shares to which such bid and ask prices apply, or other comparable
information relating to the depth and liquidity of the market for such stock;
and
  •           monthly
account statements showing the market value of each penny stock held in the
customer’s account.
  In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser.  The broker-dealer must receive the purchaser’s written
acknowledgment of the receipt of a risk disclosure statement, a written
agreement to transactions involving penny stocks, and a signed and dated copy of
a written suitability statement. These disclosure requirements may have the
effect of reducing the trading activity in the secondary market for a stock that
becomes subject to the penny stock rules.
 
  23
 
 Our
management and directors own a significant amount of our common stock, giving
them influence or control in corporate transactions and other matters, and their
interests could differ from those of other stockholders.
 
 Our
management and directors own a large percentage of our outstanding common stock.
As a result, they are in a position to significantly influence the outcome of
matters requiring a stockholder vote, including the election of directors, the
adoption of any amendment to our articles of incorporation or bylaws, and the
approval of significant corporate transactions. Their control may delay or
prevent a change of control on terms favorable to our other stockholders and may
adversely affect your voting and other stockholders rights.
 
 We
have not paid dividends in the past and do not expect to pay dividends in the
future.  Any return on investment may be limited to the value of our
common stock.
 
 We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future.  The payment of dividends on our common stock
will depend on earnings, financial condition and other business and economic
factors affecting it at such time as the board of directors may consider
relevant.  If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if our stock price
appreciates.
  24
 
 Item
2. Description of Properties.
 
 SOKO and
Mege Union have their corporate offices at 194 Guogeli Street, Heilongjiang
Province, Harbin, China 150001.  This property is leased by
SOKO.  As of May 31, 2009, we operate through standard tenancy
agreements out of leased properties located at:
 
 (1)
              Harbin
      Daoli Queen Demonstration Beauty Parlor (Daoli Spa)
                24
      Xishidao Street, Daoli District, Harbin, China;(2)
              Harbin
      Queen Beauty Demonstration Center (Daowai Spa)
                107
      Jinyang Street, Daowai District, Harbin, China;(3)
              Harbin
      Queen Beauty Demonstration Center Xuanhua Branch (Xuanhua
Spa)
                380-400
      Xuanhua Street, Nangang District, Harbin, China;(4)
              Harbin
      Queen Beauty Demonstration Center Nangang Branch (Nangang
Spa)
                108
      Jiejing Street, Nangang District, Harbin, China;(5)
              Harbin
      Huang Emperor & Golden Gym Club, Ltd. (SOKO International
      Fitness Center)
                7
      Yushan Road, Nangang District, Harbin, China;(6)
              Harbin
      Mege Union Beauty Management Ltd. (Legend Spa)
                389
      Hanshui Road, Nangang District, Harbin, China;(7)
              Shenyang
      Letian Yoga Fitness Center (Yoga Wave)
                96
      Zhonghua Road, Heping District, Shenyang, China;(8)
              Harbin
      Tai Ai Beauty Co. Ltd. (Lea Spa)
                68
      Ganshui Road, Kaifa District, Harbin, China;(9)
              Harbin
      SOKO Spa
                7
      Yushan Road, Nangang District, Harbin, China (same as SOKO International
      Fitness Center);(10)
              Shenyang
      Queen Beauty Demonstration Co. (Shenyang Queen Beauty Spa)
                96
      Zhonghua Road, Heping District, Shenyang, China;(11)
              Harbin
      Xinyang Spa
                330
      Xinyang Road, Daoli District, Harbin, China; and(12)
              Shenyang
      Starway Fitness Co., Ltd. (Yoga Wave II)
                124
      Huigong St. Shenhe District, Shenyang,
China
 
 In
addition we entered into a standard lease agreement for the new Da Qing facility
at 1 Lishui Road, Daqing District, Harbin, China.
  The
classrooms used by Queen Beauty Vocational Skill Training School are owned by
Harbin Queen Beauty Demonstration Center, which permits the school to use them
without fee.
 
 Item
3.  Legal Proceedings.
 
 From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.  Should any liabilities incurred in the future,
they will be accrued based on management’s best estimate of the potential loss.
Furthermore, management does not believe that there are any proceedings to which
any director, officer, or affiliate of the Company, any owner of record of the
beneficially or more than five percent of the common stock of the Company, or
any associate of any such director, officer, affiliate of the Company, or
security holder is a party adverse to the Company or has a material interest
adverse to the Company.
  Item
4.  Submission of Matters to a Vote of Security Holders.
 
 There
were no matters submitted to the vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year ended May 31, 2009.
 
 25
 
 PART
II
 
 Item
5.  Market for Common Equity, Related Stockholder Matters and Issuer
Repurchase of Equity Securities.
 
 Market
Information
 
 Our
common stock trades on the OTCBB under the symbol “SOKF.” From March 13, 2007
until July 16, 2008, our common stock traded on the OTCBB under the symbol “AMHG
..” The following table sets forth the high and low intra-day prices per share of
our common stock for the periods indicated, which information was provided by
the OTCBB. Prior to May 28, 2008, shares of our common stock traded very
infrequently and the actual price information is not readily available. The
quotations set forth below reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
 
 High
              
              
              LowFiscal
      2008Fourth
      Quarter (May 28, 2008 - May 31, 2008)
              
              $
              12.00
              
              
              $
              1.25Fiscal
      2009First
      Quarter (through August 31, 2008)
              
              $
              2.25
              
              
              $
              0.50Second
      Quarter (through November 30, 2008)
              
              $
              1.02
              
              
              $
              0.40Third
      Quarter (through February 28, 2009)
              
              $
              1.20
              
              
              $
              0.80Fourth
      Quarter (through May 31, 2009)
              
              $
              1.55
              
              
              $
              0.10Fiscal
      2010First
      Quarter (through August 27, 2009)
              
              $
              4.00
              
              
              $
              0.10
 
 On August
27, 2009, the closing price of our common stock as reported on the OTCBB was
$2.50.
 
 Holders
 
 As of
August 27, 2009, there were 17,000,000 shares of our common stock outstanding
held by approximately 19 shareholders of record.  The number of our
shareholders of record excludes any estimate by us of the number of beneficial
owners of shares held in street name, the accuracy of which cannot be
guaranteed.
 
 Dividend
Policy
 
 We have
not paid any cash dividends on our common stock to date, and we have no
intention of paying cash dividends in the foreseeable future. Whether we will
declare and pay dividends in the future will be determined by our board of
directors at their discretion, subject to certain limitations imposed under
Delaware corporate law. In addition, our ability to pay dividends may be
affected by the foreign exchange controls and other limitation imposed by the
PRC laws. The timing, amount and form of dividends, if any, will depend on,
among other things, our results of operations, financial condition, cash
requirements and other factors deemed relevant by our board of directors.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
 
 Information
regarding securities authorized for issuance under our equity compensation plans
is disclosed in the section captioned, “Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.”
 
 26
  Repurchases
of Equity Securities
 
 None.
 
 Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
 
 None.
 
 Item
6.  Selected Financial Data.
 
 Not
required.
 
 Item
7.  Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
 
 Safe
Harbor Declaration
 
 The
comments made throughout this annual report should be read in conjunction with
our financial statements and the notes thereto, and other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain certain
forward-looking information. When used in this discussion, the words,
“believes,” “anticipates,” “expects,” and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially
from projected results, due to a number of factors beyond our control. SOKO does
not undertake to publicly update or revise any of its forward-looking
statements, even if experience or future changes show that the indicated results
or events will not be realized. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Readers are also urged to carefully review and consider our discussions
regarding the various factors, which affect company business, included in this
section and elsewhere in this annual report.
 
 Overview
 
 SOKO was
incorporated as a Delaware corporation on September 9, 2004 under the name
American Business Holdings, Inc. as a holding vehicle to own and control a
textile and plastic packaging company in Central and East Africa. On September
12, 2004, SOKO completed a transaction in which it purchased all of the
outstanding membership shares in Tissakin Ltd., a Democratic Republic of Congo
corporation, so that Tissakin Ltd. became our wholly owned subsidiary. Through
Tissakin Ltd, we were a manufacturer of bags for packaging agricultural products
in the Democratic Republic of Congo.
 
 On April
11, 2008, we consummated a Share Exchange and a series of transactions pursuant
to which we acquired all of the outstanding shares of common stock of Wealthlink
from the Wealthlink Shareholders in exchange for 13,300,000 shares of our common
stock.  We also sold the Tissakin operations to our former Chief
Executive Officers and certain others.
 
 Following
the completion of the transactions described above, we changed our name to SOKO
Fitness & Spa Group, Inc. effective as of June 6, 2008.  These
transactions are described in further detail under “Description of Business-
April 2008 Share Exchange and Financing Transactions.”
 
 Wealthlink
was organized under the laws of the Cayman Islands on March 27, 2007 and is
headquartered in Harbin, Heilongjiang Province, China.
  27
 
 Results
of Operation
 
 For
the Fiscal Years Ended May 31, 2009 Compared to May 31, 2008
 
 Year
      Ended May 31,
              
              
              $
              
              
              %2009
              
              
              2008
              
              
              Change
              
              
              ChangeRevenuesProfessional
      Services
              
              $
              11,284,644
              
              
              $
              10,296,518
              
              
              $
              988,126
              
              
              
              9.6
              %Sales
      of Product
              
              $
              3,624,257
              
              
              $
              1,229,363
              
              
              $
              2,394,894
              
              
              
              194.8
              %Membership
      Fees
              
              $
              2,977,462
              
              
              $
              1,498,503
              
              
              $
              1,478,959
              
              
              
              98.7
              %Tuition
              
              $
              1,682,744
              
              
              $
              938,746
              
              
              $
              743,998
              
              
              
              79.3
              %Total
      Revenues
              
              $
              19,569,108
              
              
              $
              13,963,130
              
              
              $
              5,605,978
              
              
              
              40.2
              %Cost
      of Sales
              
              $
              6,591,906
              
              
              $
              5,010,643
              
              
              $
              1,581,263
              
              
              
              31.6
              %Gross
      Profit
              
              $
              12,977,202
              
              
              $
              8,952,487
              
              
              $
              4,024,715
              
              
              
              45.0
              %Operating
      Expenses
              
              $
              5,902,059
              
              
              $
              4,009,497
              
              
              $
              1,892,562
              
              
              
              47.2
              %Income
      Tax Provision
              
              $
              42,667
              
              
              $
              74,381
              
              
              $
              (31,714
              )
              
              
              (42.6
              )%Net
      Income attributable to
                SOKO
      Fitness & Spa Group, Inc.
              
              $
              7,030,500
              
              
              $
              4,702,980
              
              
              $
              2,327,520
              
              
              
              49.5
              %
 
 Revenues:
 
 Revenues for
the fiscal year ended May 31, 2009 increased by approximately $5.6 million or
40.2% to $19.6 million as compared to $14.0 million for the fiscal year ended
May 31, 2008. Although we did not increase our prices from year to year, our
sales growth was driven by increasing sales from our existing members and
clients, sales of add-on services to members and clients and our continued
efforts to add new members and clients in new and existing
facilities.
 
 Our member
and client base increased as follows:
 
 Year
      Ended May 31,2009
              
              
              2008Fitness
      Memberships
              
              
              13,000
              
              
              
              10,000New
      Memberships
              
              
              4,890
              
              
              
              3,540
              (1)Old
      Memberships that were renewed
              
              
              8,110
              
              
              
              6,460Memberships
      that were not renewed
              
              
              1,890
              
              
              
              340BeautySalon andSpa
    Clients
              
              
              19,500
              
              
              
              10,000New
      Clients
              
              
              11,068
              
              
              
              5,340Recurring
      Clients that purchased additional treatments
              
              
              8,432
              
              
              
              4,660Clients
      that did not purchase additional treatments
              
              
              1,568
              
              
              
              340
  (1)
                Includes
      560 memberships that were signed up as a group prior to the end of the
      business year ended May 31, 2007 but where the membership term began in
      the fiscal year ended May 31, 2008.
  28
 
 Compared
to fiscal year ended May 31, 2008, beauty and spa revenues increased by 29.4%,
driven by the increasing number of clients and the opening of new facilities.
Fitness and yoga revenues increased by 98.7%, driven by our marketing efforts to
add more memberships, the acquisition of Yoga Wave and the increased revenues
from our add-on services to our members.  Other revenues, which
consist of beauty school tuition and related student surcharges, increased by
79.3%, driven by the increasing number of students and new courses, which
in turn attracted more students.  Our business is not
seasonal.
 
 Gross
Profit:
 
 We
achieved gross profits of $13.0 million for the fiscal year ended May 31, 2009,
compared to $9.0 million for the previous year, representing an 45.0% or
approximately $4.0 million year to year increase. Our overall gross profit
margin as a percentage of revenue was 66% for the fiscal year ended May 31,
2009, compared to 64% for the previous year. The improvement of our gross profit
margin was mainly driven by the shift from our lower-margin professional beauty
and spa services and sales of products to higher-margin services (i.e., yoga
services and beauty school tuition) during the fiscal year 2009. We also lowered
our costs of products sold by negotiating with our vendors to purchase products
at bulk rates.
 
 Operating
Expenses:
 
 Our
operating expenses, consisting of selling, general and administrative expenses,
increased by approximately $1.9 million to $5.9 million for the fiscal year
ended May 31, 2009 from $4.0 million for the previous year. This increase in
selling, general and administrative expenses by 47.2% is mainly attributable to
the increase in amortization of leasehold improvement, increased rental expenses
for new and existing facilities and other expenses relating to our growth in
sales.  The overall increase in our operating expenses was in
proportion to our increase in sales.
 
 Other
Income (Expenses):
 
 Other
income (expenses), consisting primarily of interest expenses, penalty, donation
and other miscellaneous expenses, increased by $232,692 to $289,840 for the
fiscal year ended May 31, 2009 from $57,148 for the previous year. This increase
is mainly attributable to a one-time charge of $200,000 in liquidated damage
penalty we are required to pay to our investors for failure to effect a
registration statement by the deadline set forth in the agreement and a loss of
$54,809 from disposal of fixed assets.
 
 Income
Tax Provision:
 
 The
Company’s provision for income taxes for the fiscal years ended May 31, 2009 and
2008 were $42,667 and $74,381, respectively, a decrease of $31,714 or 42.6% from
year to year.  The decrease in income taxes provisions is largely due
to execution of our tax planning strategy this year by separating our beauty and
spa facilities from our fitness centers.  Revenues from our fitness
centers are usually taxed at a regular rate of 25% while revenues generated from
our beauty and spa facilities are generally subject to a fixed tax system, which
results in much lower taxes. As the Queen Group facilities were formed as
individually-owned sole proprietorships and are being consolidated as “variable
interest entities,” we will continue to enjoy a fixed tax system, in which, the
income taxes are assessed annually by the local tax authority based on our past
performance and creation of jobs etc. A majority of our net income is generally
exempt from income taxes.  However, because of our continuing growth,
we expect our fixed taxes for the Queen Group will likely increase in the future
as the fixed tax system will be assessed annually based on past
performance.
 
 29
 
 Net
Income Attributable to SOKO Fitness & Spa Group, Inc.:
 
 Net
income attributable to SOKO Fitness & Spa Group, Inc. for the fiscal year
ended May 31, 2009 increased by approximately $2.3 million to $7.0 million as
compared to $4.7 million for the previous year, representing a 49.5% increase
year-to-year. This increase was mainly attributable to our 40.2% increase in
revenues, coupled with our ongoing efforts to cut costs.
 
 In
general, our fitness membership and beauty salon and spa client base turns over
at rate of approximately 11% and 19%, respectively, per year.  We
believe that this turnover rate is reasonable and acceptable within our target
market. We continue to strengthen our marketing strategies, enhance our
facilities to provide a state-of-the-art experience for our fitness members and
beauty and spa clients, and increase the knowledge and skill level of our staff
in an effort to minimize turnover.  We believe that our revenue will
continue to increase primarily as a result of our continued expansion of
products and services, emphasis on enrolling new members and attracting new
clients and improving member/client retention, and our strong focus on promoting
the SOKO® and Queen’s Beauty® brands in the Northeast region of
China.  As we develop higher margin offerings (such as spa services),
our profits and margins should continue to grow going
forward.
 
 We have
begun to implement growth and expansion plans in existing and new facilities
that, we believe, will result in higher net income in the long run. However, as
we undergo these changes in our business, we believe we will incur a significant
increase in our operating expenses, mainly due to construction costs, increased
rent expenses, salaries and benefit costs and sales commissions.  We will
seek to manage these costs so as minimize any adverse impact our results of
operations, although we may be unable to do so.  With respect to labor
costs, we believe that by improving our internal operational systems to optimize
employee working schedules and reduce overtime labor costs, we will be able
maintain labor costs at a reasonable level.  With respect to expansion
costs such as construction costs and increased rent expenses, we have
established internal mechanisms and an implementation team to monitor and
potentially limit and control increases of these expenses.  In each of the
different locations in which we operate, we consider local criteria before and
during expansion planning and execution.
  Liquidity
and Capital Resources
 
 For
the Fiscal Years Ended May 31, 2009 Compared to May 31, 2008
 
 Year
      Ended May 31,2009
              
              
              2008Cash
      provided by (used in):Operating
      Activities
              
              $
              9,385,023
              
              
              $
              4,858,473Investing
      Activities
              
              $
              (8,675,665
              )
              
              $
              (8,612,510
              )Financing
      Activities
              
              $
              (391,432
              )
              
              
              4,728,315
 
 Operations
 
 Cash
provided by operating activities totaled approximately $9.4 million for the
fiscal year ended May 31, 2009 as compared to $4.8 million in the previous year,
an increase of approximately $4.5 million year to year. The increase in our cash
provided by operations was primarily due to the increase in our net income,
together with a $0.5 million decrease in our advances to vendors and a $1.4
million increase in unearned revenue.
 
 Investments
 
 We
invested $8.4 million in fixed assets and construction in process for the fiscal
year ended May 31, 2009 as compared to $6.0 million in the previous year. The
investments are a part of our development plans, which include continuous
renovation of our existing facilities and construction of
new venues.
 
 30
  Financing
 
 For the
fiscal year ended May 31, 2009, we entered into two short-term commercial loans
with Shanghai Pudong Development Bank in the aggregate amount of
$2,196,795.  We also paid off a commercial loan with Shanghai Pudong
Development Bank in the amount of $1,729,107 as well as two other short-term
loans in an aggregate amount of $859,120, resulting in net cash outflow of
$391,432.  The short term loans include the following:
 
 Balance
      at
                Year
      Ended May 31,2009
              
              
              2008a)
              
              
              Loan
      payable to Shanghai Pudong Development Bank with a one year term from
      February 29, 2008 to January 29, 2009 at a fixed interest rate of 0.62%
      per month
              
              $
              --
              
              
              $
              1,729,107
 b)
              
              
              Loan
      payable to Shanghai Pudong Development Bank with a one year term from
      November 21, 2008 to November 20, 2009 at a fixed interest rate of 0.4995%
      per month
              
              $
              1,025,171
              
              
              $
              --c)
              
              
              Loan
      payable to an unrelated party with a one year term from October 23, 2007
      to October 28, 2008 at a fixed interest payment of RMB4,000 per quarter.
      This loan was extended to December 7, 2008 at a fixed interest rate of 2%
      per month
              
              $
              --
              
              
              $
              288,184d)
              
              
              Loan
      payable to a related party with a one year term from April 1, 2008 to
      March 31, 2009 free of interest
              
              $
              --
              
              
              $
              529,953e)
              
              
              Loan
      payable to Shanghai Pudong Development Bank with a term from January 5,
      2009 to November 20, 2009 at a fixed interest rate of 0.4995% per
      month
              
              $
              1,171,624
              
              
              
              --Total
              
              $
              2,196,795
              
              
              $
              2,547,244
 
 Interest
expense paid for the above short term loans totaled $66,121 and $49,042 for the
fiscal years ended May 31, 2009 and 2008, respectively.  The loan from
an unrelated bank is secured by a building owned by Queen Group.  The
Company is current with all of its obligations under the terms of the
outstanding loan facilities from Shanghai Pudong Development Bank and not in
breach of any covenant thereof.  Because of our performance on the
loan facility and our good relationship with the bank, we believe that the bank
will be willing to provide new and/or additional short-term facilities with a
maxim total amount of approximately $ 5 million in the future
 
 Capital
Expenditures
 
 On
July 1, 2008, Mege Union completed the acquisition of 100% of equity interest in
Lea Spa for RMB8,000,000 (equivalent to $1,124,938 at the date of execution of
the acquisition agreement).  As a result, Lea Spa is a direct
subsidiary of Mege Union located in Sofitel Wanda Harbin Hotel engaged in the
business of providing professional spa services.
 
 On
May 31, 2009, Mege Union entered into an acquisition agreement with Starway Asia
Limited to purchase 51% interest of the Yoga Wave II, a Yoga studio located in
the city of Shenyang. The acquisition cost was RMB2, 042, 040 (approximately
$0.3 million at the date of execution of the acquisition agreement), payable on
signing. Mege Union also loaned RMB 676,260 (approximately $0.1 million) to Yoga
Wave II for business operations on May 31, 2009. The transaction was completed
in June 2009.
  The general
purpose of the acquisitions of Lea Spa, Yoga Wave and Yoga Wave II is to expand
our business presence in the Shenyang and Harbin markets, resulting in a
maximization of profits. The funds used for the acquisitions came from the
following sources:
 
 
 Fund
      Source
              
              Amount
              
              Percentage
      of Acquisition CostShort
      Term Loan
              
              $
              811,125
              
              24.9
              %Corporate
      Funds raised in Financing
              
              $
              793,711
              
              24.4
              %Existing
      Profits
              
              $
              1,652,057
              
              50.7
              %Total
              
              $
              3,256,893
              
              100.0
              %
 
 We have
also committed to upgrade and retrofit new and existing operations in several
locations to maximize our appeal to existing and new clients in those locations
as well as constructing new facilities, thus increasing our potential profit for
the future. In general, upgrading and retrofitting our facilities consists of
cosmetic renovation, purchasing state-of-the-art equipment, if appropriate, and
reconfiguring space to add attractive amenities that are designed to appeal to a
more sophisticated member and client base. As part of our commitment to upgrade
existing facilities, we entered into a new lease for our existing Kunlun beauty
salon and spa at a new location and, as a result thereof, changed its registered
name to Harbin Queen Beauty Demonstration Center Xuanhua Branch and its
commercial brand name used on the storefront, customer card and third party
communications to Xuanhua Spa.
  31
  We also
entered into a new lease for our new Da Qing facility. The construction of the
Da Qing facility is expected to be completed in May 2010. The estimated
construction costs for Da Qing are $1,534,827. During the construction, the Da
Qing facility is not open to customers.
 
 The funds
for construction as well as for the lease payments during the construction
period come from the existing short term loans as well as from our cash
flow generated by our ongoing operations.
 
 We
believe that our brand name has value.  As part of our long-term
growth strategy, we anticipate capitalizing on this value by establishing an
upscale network of fitness centers and beauty salons and spas to expand our
territory and member and client base. We believe that there is significant
potential for the Company’s growth going forward.
 
 Off-Balance
Sheet Arrangements
 
 We do not
have off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities.”
 
 Critical
Accounting Policies
 
 While
our significant accounting policies are more fully described in Note 1 to our
consolidated financial statements at Item 15, we believe that the following
accounting policies are the most critical to aid you in fully understanding and
evaluating this “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
 
 Basis
of presentation and consolidation
 
 The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements include the financial statements of SOKO, and
its direct and indirect subsidiaries, as well as the Queen Group. All
significant inter-company transactions and balances among SOKO, its subsidiaries
and the Queen Group are eliminated upon consolidation.
  Use
of estimates
 
 In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. Significant estimates, required by management, include the
recoverability of long-lived assets and the valuation of
inventories.  Actual results could differ from those
estimates.
 
 Accounts
and other receivables
 
 Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible amounts, as needed. The
Company uses the aging method to estimate the valuation allowance for
anticipated uncollectible receivable balances. Under the aging method, bad debt
percentages determined by management based on historical experience as well as
current economic climate are applied to customers’ balances categorized by the
number of months the underlying invoices have remained outstanding. The
valuation allowance balance is adjusted to the amount computed as a result of
the aging method. When facts subsequently become available to indicate that the
allowance provided requires an adjustment, then the adjustment will be
classified as a change in estimate.  There was no allowance for
uncollectible amounts for the years ended May 31, 2009 and 2008.
  32
  Inventories
 
 Inventory
is mainly comprised of hair and skin care supplies. Inventories are stated at
the lower of cost, as determined on a first-in, first-out basis, or market.
Costs of inventories include unused purchases and supplies for providing beauty
treatments.
 
 Property
and equipment
 
 Property
and equipment are stated at cost, net of accumulated
depreciation.  Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Estimated useful lives of the
assets are as follows:
 
 Buildings
              15
      yearsBuildings
      improvement
              10
      yearsMachinery
      and equipment
              5   yearsComputer,
      office equipment and furniture
              5   yearsAutomobiles
              5   years
 
 The
carrying value of property, plant and equipment is assessed annually and when
factors indicating impairment is present, the carrying value of the fixed assets
is reduced by the amount of the impairment. The Company determines the existence
of such impairment by measuring the expected future cash flows (undiscounted and
without interest charges) and comparing such amount to the net asset carrying
value. An impairment loss, if exists, is measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
 
 Construction
in progress
 
 Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until it is completed and ready for intended use.
For the years ended May 31, 2009 and 2008, the Company had total accumulated
costs involved with construction in progress in the amount of $1,534,827 and
$3,687,591, respectively.
  Goodwill
 
 Goodwill
and other intangible assets are accounted for in accordance with the provisions
of ASC 350, “Goodwill and Other Intangible Assets”. Under ASC 350, goodwill,
including any goodwill included in the carrying value of investments accounted
for using the equity method of accounting, and certain other intangible assets
deemed to have indefinite useful lives are not amortized. Rather, goodwill and
such indefinite-lived intangible assets are assessed for impairment at least
annually based on comparisons of their respective fair values to their carrying
values.
 
 Goodwill impairment is determined using a two-step process. The first step
compares the fair value of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its carrying amount,
goodwill is not considered to be impaired and the second step will not be
required. If the carrying amount of a reporting unit exceeds its fair value, the
second step compares the implied fair value of goodwill to the carrying value of
a reporting unit’s goodwill. The implied fair value of goodwill is determined in
a manner similar to accounting for a business combination with the allocation of
the assessed fair value determined in the first step to the assets and
liabilities of the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to the assets and liabilities is the implied fair
value of goodwill. An impairment loss is recognized for any excess in the
carrying value of goodwill over the implied fair value of goodwill. Estimating
fair value is performed by utilizing various valuation techniques, with the
primary technique being a discounted cash flow.
  33
 
 In evaluating long-lived assets, other than goodwill for
recoverability, the Company uses its best estimate of future cash
flows expected to result from the use of the asset and eventual disposition in
accordance with ASC 360. To the extent that estimated future, undiscounted cash
inflows attributable to the asset, less estimated future, undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in
an amount equal to the difference between the carrying value of such asset and
its fair value. Assets to be disposed of and for which there is a committed plan
of disposal, whether through sale or abandonment, are reported at the lower of
carrying value or fair value less costs to sell.
 
 There
were no impairment losses recognized for the years ended May 31, 2009 or
2008.
 
 Revenue Recognition
 
 The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104.  Sales revenue is generally recognized when the
services are provided and payments of the customers are received or collections
are reasonably assured. Payments received in advance from members but not yet
earned are recorded as deferred revenue.
 
 Non-refundable
membership fees, non-refundable initial membership fees and monthly membership
fees that are prepaid on a non refundable basis are recognized on a
straight-line basis over the respective membership term.
 
 Foreign
currency translation
 
 Our
functional currency is RMB but we use US Dollars for financial reporting
purposes. We maintain our books and records in our functional currency, being
the primary currency of the economic environment in which our operations are
conducted.
 
 In
general, for consolidation purposes, we translate our assets and liabilities
into US Dollars using the applicable exchange rates prevailing at the balance
sheet date, and the statement of income and cash flows are translated at average
exchange rates during the reporting period. As a result, amounts related to
assets and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet. Equity accounts are translated at historical rates. Adjustments resulting
from the translation of our financial statements are recorded as accumulated
other comprehensive income.
 
 This
quotation of the exchange rates does not imply free convertibility of RMB to
other foreign currencies. At May 31, 2009, the exchange rate was $1.00 =
RMB6.8281. The weighted average translation rate of $1.00 = RMB6.8412 was
applied to the Company’s annual income statement ended May 31,
2009.
 
 Recent
Accounting Pronouncements
 
 In May 2009, the FASB issued guidance related to subsequent events under ASC
855-10, Subsequent Events. This guidance sets forth the period after the balance
sheet date during which management or a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date, and the disclosures that an entity
should make about events or transactions that occurred after the balance sheet
date. It requires disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, whether that date represents the
date the financial statements were issued or were available to be issued. This
guidance is effective for interim and annual periods ending after June 15, 2009.
We have included the required disclosures in our consolidated condensed
financial statements.
 
 In June 2009, the FASB issued an amendment to ASC 810-10, Consolidation. This
guidance amends ASC 810-10-15 to replace the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a VIE with a primarily qualitative approach focused on identifying
which enterprise has the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance. It also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE and
requires additional disclosures about an enterprise’s involvement in VIEs. This
guidance is effective as of the beginning of the reporting entity’s first annual
reporting period that begins after November 15, 2009 and earlier adoption is not
permitted. We are currently evaluating the potential impact, if any, of the
adoption of this guidance will have on our consolidated condensed financial
statements.
  34
  In
June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends
ASC 105, Generally Accepted Accounting Principles. This guidance states that the
ASC will become the source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. Once effective, the Codification’s
content will carry the same level of authority. Thus, the U.S. GAAP hierarchy
will be modified to include only two levels of U.S.
GAAP: authoritative and non-authoritative. This is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. We adopted  ASC 105 as of September 30, 2009 and thus have
incorporated the new Codification citations in place of the corresponding
references to legacy accounting pronouncements.
 
 In
August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring
Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and
Disclosures. This Update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure the fair value using one or more of the
following techniques: a valuation technique that uses the quoted price of the
identical liability or similar liabilities when traded as an asset, which would
be considered a Level 1 input, or another valuation technique that is consistent
with ASC 820. This Update is effective for the first reporting period (including
interim periods) beginning after issuance. Thus, we adopted this guidance as of
September 30, 2009, which did not have a material impact on our consolidated
condensed financial statements.
 
 In September 2009, the Financial Accounting Standards Board (FASB) amended
existing authoritative guidance to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and
reliable information to users of financial statements. The amended guidance is
effective for fiscal annual reporting periods beginning after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. The Company is currently
assessing the impact, if any, adoption may have on its financial
statements or disclosures.
  Income
Taxes
 
 Wealthlink is a tax exempted company incorporated in the Cayman Islands and
conducts all of its business through its subsidiary, Mege Union, and the
variable interest entity, Queen Group. The share exchange transaction
between Wealthlink and American Business Holdings, Inc. was considered a reverse
merger, and the Company is a Delaware corporation. For accounting purpose, the
transaction was treated under purchase method as a reorganization. There was no
goodwill or additional value recorded in such transaction. Therefore, the Share
Exchange is not considered a taxable event.
 
 1)
              Corporate
      Income Tax
 
 The
Company is a Delaware corporation and conducts all of its business through Mege
Union and Queen Group. All business is conducted in China.
 
 As of May 31, 2009, Queen Group consisted of seven individual-owned sole
proprietorships (one of which had two additional branches), which, under the PRC
laws, are generally exempt from paying corporate level income taxes unless they
are otherwise assessed by the local authority. Two of the entities under Queen
Group were assessed by the local tax authority to be subject to a fixed-rate
income tax. Under the fixed-rate income tax system, generally 10% of the annual
gross revenues from each entity are deemed Taxable Net Income (“TNI”) for income
tax purpose, without giving consideration to the costs and operating expenses.
The income tax was levied at 27% of the TNI and starting from June 1, 2008 was
levied at 25% of the TNI .
 
 Legend Spa and Lea Spa, both wholly-owned subsidies of Harbin Mege Union, are
also subject to a fixed-rate income tax system similar to that imposed on the
Queen Group entities. While Legend Spa’s TNI is taxed at 25%, Lea Spa’s TNI
is currently levied at only 20%.
 
 Yoga
Wave and Yoga Wave II are both subject to an income tax rate of 25% on all of
their net income.
  35
  The
Company incurred a net operating loss, including amortization of share-based
compensation, of $611,825 and $100,000 for U.S. income tax purposes for the
years ended May 31, 2009 and 2008, respectively. The net operating loss carry
forwards may be available to reduce future years’ taxable income. These carry
forwards will expire, if not utilized, beginning in 2028 through 2029.
Management believes that the realization of the benefits arising from these
losses appear to be uncertain due to Company’s limited operating history and
continuing losses for United States income tax purposes. Accordingly, the
Company has provided a 100% valuation allowance at May 31, 2009 for the
temporary difference related to loss carry-forwards. The valuation allowances
for the years ended May 31, 2009 and 2008 were $208,021 and $34,000,
respectively.
 
 2)
              Business
      Sales Tax
 
 General
business sales taxes are levied on business under both Queen Group and Mege
Union.  Except for SOKO International Fitness Center, which is subject
to 3% of actual revenue and Yoga Wave which is subject to 5% of actual revenue,
all other business is subject to either 3% or 5% on pre-determined fixed
revenue.
 
 Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk.
 
 Not
applicable.
 
 Item
8.  Financial Statements and Supplementary Data.
  Our
Consolidated Financial Statements and Notes thereto and the report of Bagell,
Josephs, Levine & Company, LLC, our independent registered public accounting
firms, are set forth on pages F-1 through F-[  ] of this
report.
  Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
  
 36
  Item
9A.  Controls and Procedures.
 
 Disclosure Controls and
Procedures.
 
 Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were not effective as of May 31, 2009 based on the significant
deficiencies described below.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting (ICFR) as defined in Rule
13a-15(f) under the Securities Exchange Act of 1934. Our
internal controls over financial reporting are designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer, or
persons performing similar functions, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting, and includes those
policies and procedures that:
 
 1.
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;
 
 2.
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and
      directors; and
 
 3.
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.
  Management
has evaluated the effectiveness of our internal control over financial reporting
as of May 31, 2009 based on the control criteria established in a report
entitled Internal
Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on our assessment and
those criteria, our management has concluded that our internal control over
financial reporting was not effective due to the following significant
deficiencies as of May 31, 2009:
 
 1.
              We
      lack sufficient personnel with the appropriate level of knowledge,
      experience and training in the application of US GAAP standards,
      especially related to complicated accounting issues. This
      could  cause us to be unable to fully identify and resolve
      certain accounting and disclosure issues that could lead to a failure to
      maintain effective controls over preparation, review and approval of
      certain significant account reconciliation from Chinese GAAP to US GAAP
      and necessary journal entries.
 
 2.
              We
      have a relatively complicated corporate structure, which consists of
      multiple facilities and subsidiaries. The relatively small number of
      professionals we employ in our bookkeeping and accounting functions
      prevents us from appropriate segregating duties within our internal
      control system.  The inadequate segregation of duties is a
      weakness because it could lead to the untimely identification and
      resolution of accounting and disclosure matters or could lead to a failure
      to perform timely and effective
reviews.
 
 In
summary, management believes that the magnitude of any financial statement
misstatement resulting from these control deficiencies shall be more than
inconsequential, but less than material.  Accordingly, management has
determined that each of the control deficiencies described above constitute
significant deficiencies.
  Remediation
of Significant Deficiencies
 
 As of May
31, 2009, there were control deficiencies which constitute as significant
deficiencies in our internal control over financial reporting.
  37
  We have
authorized (i) the education and training of our existing accounting personnel,
especially in the application of US GAAP standards and new accounting
pronouncements and (ii) the addition of staff members to our accounting
department to ensure that it has the depth and experience to implement and
monitor the appropriate level of control procedures related to all of our
locations and corporate office.  In addition, we are in the process of
planning and implementing more appropriate internal control policies and
procedures in all of our locations and subsidiaries to provide adequate
segregation of duties in critical control areas.
 
 Through
these steps, we believe we are addressing the deficiencies that affected our
internal control over financial reporting as of May 31, 2009. Because the
remedial actions require hiring of additional personnel and relying extensively
on manual review and approval, the successful operation of these controls for at
least several quarters may be required before management may be able to conclude
that the significant deficiencies have been remediated.  We intend to
continue to evaluate and strengthen our ICFR systems. These efforts require
significant time and resources.  If we are unable to establish
adequate ICFR systems, we may encounter difficulties in the audit or review of
our financial statements by our independent public accountants, which in turn
may have a material adverse effect on our ability to prepare financial
statements in accordance with US GAAP and to comply with our SEC reporting
obligations.
 
 Inherent
Limitations Over Internal Controls
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect all errors or misstatements and all fraud. Therefore, even
those systems determined to be effective can provide only reasonable, not
absolute, assurance that the objectives of the policies and procedures are met.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
 
 This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management’s report in this annual report.
 
 Changes
in Internal Control Over Financial Reporting
 
 SOKO was,
until mid-2008 when it merged with and into American Business Holdings, Inc., an
operating business existing in and subject to, the laws of the People’s Republic
of China.  As a Chinese company, we developed minimal ICFR for the
operation of our businesses.  As a result of the merger, SOKO
became subject to US GAAP financial reporting standards, and the rules and
regulations of the SEC with respect to the development of internal controls over
financial reporting.  There were no changes in our internal controls
over financial reporting identified in connection with the evaluation that
occurred during the quarter ended May 31, 2009 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.  Our management has initiated the steps outlined above
under “Remediation of Significant Deficiencies.”
 
 Item
9B.  Other Information.
 
 None.
 
 38
  PART
III
 
 Item
10.  Directors, Executive Officers and Corporate Governance
 
 Executive
Officers and Directors
 
 The
following sets forth certain biographical information concerning our directors
and executive officers as of May 31, 2009:
 
 Name
              Position
              AgeTong
      Liu
              Chief
      Executive Officer, Chairman of the Board
              41Xia
      Yu
              Chief
      Financial Officer, Director
              39Yang
      Chen
              Director
              32Su
      Zhang
              Director
              38Gideon
      E. Kory
              Director
              49
 
 Tong Liu, 41, has served as
our Chief Executive Officer and Chairman of the Board since the consummation of
the Share Exchange on April 11, 2008.  Mr. Liu has served as Chief
Executive Officer and Director of Wealthlink and Mege Union since their
formation in 2007.  He was the Chief Executive Officer of Harbin Queen
Beauty Demonstration Center from July 1993 until June 2007.  Mr. Liu’s
experience includes management and development of professional fitness, beauty
salon and lifestyle and spa businesses.  Mr. Liu graduated from Harbin
Workingman Occupation University in 1991.
 
 Xia Yu, 39, has served as our
Chief Financial Officer and a Director since consummation of the Share Exchange
on April 11, 2008. Ms. Yu has served as Chief Financial Officer of Wealthlink
and Mege Union since their formation in 2007. From January 2005 through May
2007, Ms. Yu served as Chief Financial Officer of Harbin Queen Beauty
Demonstration Center. From July 2004 through December 2004, Ms. Yu served as
Deputy General Manager of Gaoyang Advertisement Co., Ltd. and from March 2003
through June 2004, Ms. Yu was Deputy General Manager of Shiyite Trading Co.,
Ltd. Ms. Yu holds an MBA from Harbin Industry University.
 
 Yang Chen, 32, has served as
a Director of SOKO since the consummation of the Share Exchange on April 11,
2008.  Mr. Chen is an attorney and was a partner with the law firm of
Guangsheng & Partners from May 2002 through December 2007.  Mr.
Chen has an L.L.B. degree from Heilongjiang University Law School and a
bachelor’s degree in management from Harbin College.
 
 Su Zhang, 38, has served as a
Director of SOKO since the consummation of the Share Exchange on April 11,
2008.  From June 2006 through May 2009, Mr. Zhang served as Managing
Director of Investments for Hua-Mei 21st Century LLC, which is affiliated with
Guerilla Capital Management, L.L.C. and Hua-Mei 21st Century Partner, LP. From
December 2005 until May 2006, he served as the Chief Operating Officer of TengTu
International Ltd.  Mr. Zhang was a founder of WeiZhXian Science and
Technology Co. Ltd. and served as its General Manager from March 2004 to
November 2005.  From October 2003 through February 2004, Mr. Zhang
served as the Assistant President of Joyo.com.  From September 2002 through
September 2003, Mr. Zhang worked for Legend Capital.  Mr. Zhang holds an
MBA from Guanghua School of Management, Peking University.
 
 Gideon E. Kory,49, has served as a Director
of SOKO since the consummation of the Share Exchange on April 11,
2008.  Mr. Kory has served as a Managing Director of Freedom Investors
Corp., an investment bank and registered broker-dealer, since August
2008.  From June 2005 through July 2008, Mr. Kory was Managing
Director of Pacific Summit Capital, an investment bank and registered
broker-dealer and from January 2003 through May 2005, Mr. Kory served as Senior
Research Analyst and Vice President of Mergers and Acquisitions for Roth Capital
Partners, an investment bank and registered broker-dealer.  Prior to
his involvement in the securities industry, Mr. Kory spent 15 years in
engineering and management working with government, commercial enterprises, and
research institutions and as an independent consultant Mr. Kory is a
Chartered Financial Analyst.  Mr. Kory holds a Bachelor of Science in
Electrical Engineering from the Israel Institute of Technology.
 
 39
 
 Each of
our directors has been elected to a one year term, to serve until the annual
meeting of stockholders or as soon thereafter as their successors are duly
elected and qualified.
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act requires our directors, executive officers and any
persons beneficially holding more than ten percent of our common stock to report
their ownership of common stock and any changes in that ownership to the
SEC.  The SEC has established specific due dates for these reports,
and we are required to report in this document any failure to file by these
dates.  Based solely on a review of the copies of the reports
furnished to us and written representations that no other such statements were
required, we believe that all such reports were filed on a timely basis, except
as follows:  Guerrilla Capital Management, L.L.C. did not timely
report the acquisition during September 2008 by its principal, Peter Siris, of
an aggregate of 52,000 shares of our common stock for the benefit of his
child.  This acquisition has subsequently been reported on a Form
4.
 
 Code
of Ethics
 
 Our board
of directors understands the importance of having a well thought out and
meaningful code of conduct and ethics that applies to our directors, Chief
Executive Officer, Chief Financial Officer and all of our officers and
employees.  We are in the process of preparing and approving a code of
ethics that deters wrongdoing and promotes, among other things, honest and
ethical behavior.  Upon adoption we will post the text of our code of
conduct on our website at www.sokofitness.com.
 
 Director
Independence
 
 Our
board has determined that each of Gideon E. Kory, Yang Chen and Su Zhang is an
independent director within the meaning of applicable NASDAQ Stock Market and
SEC rules. As of the date of this report, our common stock is traded on the OTC
Bulletin Board. The OTC Bulletin Board does not impose on us standards relating
to director independence or the makeup of committees with independent directors,
or provide definitions of independence.
 
 Committees
of the Board of Directors
 
 Audit
Committee
 
 The board
of directors has an Audit Committee, which is comprised of Gideon E. Kory
(Chairman), Yang Chen and Su Zhang. The board of directors has examined the
composition of the Audit Committee in light of the regulations under the
Exchange Act and the current listing standards and regulations of the NASDAQ
Stock Market LLC applicable to audit committees. Based upon this examination,
the board of directors has determined that each of the Audit Committee members
is an “independent” director within the meaning SEC and NASDAQ regulations.
Mr. Kory qualifies as an “audit committee financial expert” as that term is
defined in applicable regulations of the SEC. The Audit Committee’s
responsibilities include:
 
 
              The
      appointment, replacement, compensation, and oversight of work of the
      independent auditor, including resolution of disagreements between
      management and the independent auditor regarding financial reporting, for
      the purpose of preparing or issuing an audit report or performing other
      audit, review or attest services.
 
 
              Reviewing
      and discussing with management and the independent auditor various topics
      and events that may have significant financial impact on our company or
      that are the subject of discussions between management and the independent
      auditors.
 
 The board
of directors is in the process of preparing a written charter for the Audit
Committee that sets forth the foregoing and further defined the duties and
responsibilities of the Audit Committee.
  40
  Compensation
Committee
 
 The board
of directors has a Compensation Committee, which is comprised of Yang Chen
(Chairman), Gideon E. Kory and Su Zhang, each of whom is an independent
director. The Compensation Committee is responsible for the design, review,
recommendation and approval of compensation arrangements for our directors,
executive officers and key employees, and for the administration of our equity
incentive plans, if any, including the approval of grants under such plans to
our employees, consultants and directors. The Compensation Committee also
reviews and determines compensation of our executive officers, including our
Chief Executive Officer. The board of directors is in the process of preparing a
written charter for the Compensation Committee that sets forth the foregoing and
further defined the duties and responsibilities of the Compensation
Committee.
  Nominating and Corporate
Governance Committee
 
 The board
of directors has a Nominating and Corporate Governance Committee, which is
comprised Su Zhang (Chairman), Yang Chen and Gideon E. Kory. The Nominating and
Corporate Governance Committee assists in the selection of director nominees,
approves director nominations to be presented for shareholder approval at our
annual general meeting and fills any vacancies on our board of directors,
considers any nominations of director candidates validly made by shareholders,
and reviews and considers developments in corporate governance practices. The
board of directors is in the process of preparing a written charter for the
Nominating and Corporate Governance Committee that sets forth the foregoing and
further defined the duties and responsibilities of the Nominating and Corporate
Governance Committee.
 
 Audit
Committee Financial Expert
 
 The board
of directors has examined the composition of the Audit Committee in light of the
listing standards of the Nasdaq Stock Market and the regulations under the
Exchange Act applicable to audit committees. Based upon this examination, the
board of directors has determined that each of the Audit Committee members is an
“independent” director within the meaning of such listing standards and the
Exchange Act and the rules and regulations thereunder. Mr. Kory qualifies as an
“audit committee financial expert” as that term is defined in applicable
regulations of the SEC.
 
 Item
11.  Executive Compensation
 
 Summary
Compensation Table
 
 The table
below summarizes all compensation awards to, earned by, or paid to our current
principal executive officer, our current principal financial officer and our
most highly compensated executive officers whose salary and bonus for services
rendered in all capacities exceeded $100,000, if any (collectively, the “named
executive officers”) for all services rendered in all capacities to the Company,
and to Wealthlink, as our predecessor, and its subsidiaries for the fiscal years
ended May 31, 2009, and 2008.
 
 Name
      and Principal Position
              Fiscal
                Year
              
              Salary
      (1)
                ($)
              
              
              Bonus
                ($)
              
              
              Total
      (1)
                ($)Tong
      Liu, Chief Executive Officer (2)
              2009
              
              
              17,574
              
              
              
              0
              
              
              
              17,5742008
              
              
              17,291
              
              
              
              0
              
              
              
              17,291Xia
      Yu, Chief Financial Officer (3)
              2009
              
              
              8,084
              
              
              
              0
              
              
              
              8,0842008
              
              
              7,954
              
              
              
              0
              
              
              
              7,954
 
 (1)
              The
      salary for each of the named executive officers was calculated and paid in
      Chinese Yuan Renminbi (RMB) by our wholly-owned subsidiary, Mege
      Union.  The amounts in the foregoing table represent the US
      dollar equivalent based on the following conversion rates:  RMB1
      = $0.146453 at May 29, 2009, RMB1 = $0.144092 at May 30, 2008 and RMB1 =
      $0.130692 at May 31, 2007.
   (2)
              Prior
      to April 11, 2008, Mr. Liu served as Chief Executive Officer and director
      of Wealthlink and its subsidiaries. Mr. Liu’s annual compensation is
      RMB120, 000.
 
 (3)
              Prior
      to April 11, 2008, Ms. Yu served as the Chief Financial Officer of
      Wealthlink and its subsidiaries.  Ms. Yu’s annual compensation
      is RMB55, 200.
 
 41
 
 Employment
Agreements
 
 We do not
have any written employment agreements, aside from those entered into between
our subsidiaries in China and all employees in China.
 
 Outstanding
Equity Awards at Fiscal Year-End
 
 There
were no individual grants of stock options to purchase our common stock made to
our named executive officers during the fiscal year ended May 31,
2009.
 
 Director
Compensation
 
 Neither
Mr. Liu nor Ms. Yu receives any compensation for serving on the board of
directors.  The following table provides information concerning the
compensation of our non-executive directors for the period from June 1, 2008
through May 31, 2009:
 
 Name
              
              Fees Earned or
                Paid in Cash
      ($)
              
              
              Option Awards($)(1)
              
              
              Total ($)Yang
      Chen (2)
              
              
              3,515
              
              
              
              5,994
              (3)
              
              
              9,509Su
      Zhang (2)
              
              
              3,515
              
              
              
              5,994
              (3)
              
              
              9,509Gideon
      E. Kory (4)
              
              
              29,990
              
              
              
              36,633
              (5)
              
              
              66,623
 
 (1)
              The
      options have an exercise price of $1.47 per share.  The values
      of the option awards are based on the amount recognized for financial
      statement reporting purposes in 2009 computed in accordance with FAS 123R
      (disregarding any estimates of forfeitures relating to service-based
      vesting conditions).  See Note 14 to the consolidated financial
      statements in Item 15. “Exhibits, Financial Statement Schedules” on page
      F-18 of this annual report regarding assumptions underlying the valuation
      of stock option grants.
 
 (2)
              The
      cash compensation paid to Messrs. Chen and Zhang was calculated and paid
      in RMB, at the annual rate of RMB24,000.  The amounts in the
      foregoing table represent the US dollar equivalent based on the conversion
      rate of RMB1 = $0.146453 at May 29,
2009.
 
 (3)
              The
      options awarded to Messrs. Chen and Zhang on March 2, 2009 vest over
      a three year period, with 20% vesting on the grant date and 40% vesting on
      the first and second anniversaries of the grant date, provided that the
      reporting person remains associated with SOKO on the vesting dates. The
      option is exercisable for three years from the date of
      grant.
 
 (4)
              Mr.
      Kory’s annual cash compensation was raised effective March 2, 2009 from
      $24,000 to $36,000.
 
 (5)
              The
      option awarded to Mr. Kory on March 2, 2009 was immediately
      exercisable in full and is exercisable for three years from the date of
      grant.
  42
  We have granted individual compensatory stock options to our non-management
directors.  An aggregate of 110,000 shares of our common stock have
been issued to our three non-management directors, Messrs. Chen, Kory and
Zhang.  On July 8, 2008, Mr. Kory received an option to purchase
50,000 shares of our common stock, expiring on July 8, 2013, at an exercise
price of $1.47 per share, which price was the volume weighted average price of
our common stock for the period ended July 7, 2008.  The option vests
in three equal installments, on the grant date and the first and second
anniversaries of such grant date.  On March 2, 2009, each of Messrs.
Chen, Kory and Zhang received an option to purchase 20,000 shares of our common
stock, expiring on March 2, 2012, at an exercise price of $1.47 per share, which
price was above market and consistent with the exercise price established in Mr.
Kory’s initial grant.  The options granted to Messrs. Chen and Zhang
on March 2, 2009 vest over a three year period, with 20% vesting on
the grant date and 40% vesting on the first and second anniversaries of the
grant date, provided that the reporting person remains associated with SOKO on
the vesting dates.  The option granted to Mr. Kory on March 2,
2009 vested in full on the date of grant.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
 
 Security
Ownership of Certain Beneficial Owners and Management.
 
 The table
below sets forth information, as of August 21, 2009, concerning (a) each person
that is known to us to be the beneficial owner of more than 5% of SOKO’s common
stock; (b) each of our named executive officers; (c) each director; and (d) all
of the directors and executive officers as a group. Unless otherwise indicated,
to our knowledge, all persons listed below have sole voting and investment power
with respect to their shares, except to the extent spouses share authority under
applicable law. Beneficial ownership is determined in accordance with the rules
of the SEC.
 
 At the
close of business on August 21, 2009, we had 17,000,000 shares of common stock
outstanding.  In computing the number and percentage of shares
beneficially owned by a person, shares that may be acquired by such person
within 60 days of August 21, 2009 are counted as outstanding, while these shares
are not counted as outstanding for computing the percentage ownership of any
other person.
 
 Name
      and Address of Beneficial Owner (1)
              
              Number
      of
                Shares
                Beneficially
                Owned
              
              
              Percentage
      of
                Shares
                Beneficially
                Owned
      (2)5%
      ShareholdersGuerilla
      Capital Management, LLC. (3)
                Hua-Mei
      21st Century Partner, LP
                237
      Park Avenue
                9th
      Floor
                New
      York, New York 10017
              
              
              3,652,000
              
              
              
              19.43
              %Directors
      and Named ExecutivesTong
      Liu (4)
              
              
              8,960,000
              
              
              
              52.71
              %Xia
      Yu
              
              
              40,000
              
              
              
              *Yang
      Chen (5)
              
              
              4,000
              
              
              
              *Gideon
      E. Kory (5)
              
              
              53,333
              
              
              
              *Su
      Zhang (5)
              
              
              4,000
              
              
              
              *All
      officers and directors as a group (5 persons)
              
              
              9,061,333
              
              
              
              53.30
              %
 *
              Less
      than 1 percent
 
 43
  (1)
              Except
      as otherwise indicated, the address of each beneficial owner is c/o SOKO,
      No.194,Guogeli Street, Harbin, Heilongjiang Province, China,
      150001.
 
 (2)
              Beneficial
      ownership has been determined in accordance with Rule 13d-3 under the
      Exchange Act. Unless otherwise noted, we believe that all persons named in
      the table have sole voting and investment power with respect to all shares
      of common stock beneficially owned by
them.
 
 (3)
              This
      information is derived from Amendment No. 1 to Schedule 13D
      filed jointly by Guerilla Capital Management, LLC., a Delaware limited
      liability company (“Guerrilla Capital”) and Hua-Mei 21st Century Partner,
      LP, a Delaware limited partnership (the “Partnership”) on August 12, 2009
      and includes 1,852,000 shares of the Company’s common stock and 1,800,000
      shares underlying warrants acquired by Guerrilla Capital and the
      Partnership in a Financing by the Company.  Guerrilla Capital
      may be deemed to be the beneficial owner of 3,652,000 shares and the
      Partnership may be deemed to be the beneficial owner of 2,800,000 shares.
      Guerrilla Capital serves as investment manager for the Partnership and
      Guerrilla Partners L.P., a Delaware limited partnership. Guerrilla Capital
      (i) has the sole power to vote or direct the vote of, and sole power to
      dispose or direct the disposition of, 800,000 shares of our common stock
      and (ii) shares the power to vote or direct the vote of, to dispose or
      direct the disposition of, 2,852,000 shares of our common stock. The
      Partnership (i) has the sole power to vote or direct the vote of, and sole
      power to dispose or direct the disposition of, no shares of our common
      stock and (ii) shares the power to vote or direct the vote of, to dispose
      or direct the disposition of, 2,800,000 shares of our common stock. Peter
      Siris has control over management and investment decisions for Guerilla
      Capital and the Partnership. Guerrilla Capital specifically disclaims
      beneficial ownership in the shares reported herein except to the extent of
      its pecuniary interest therein.
 
 (4)
              Includes
      2,000,000 shares held in escrow by Crone Rozynko LLP under the terms of an
      Escrow Agreement dated as of April 7,
2008.
 
 (5)
              Includes
      beneficial ownership of shares issuable upon the exercise of options that
      are currently exercisable or will be exercisable within 60 days of August
      21, 2009, as follows:  Mr. Chen, 4,000 shares, Mr. Kory, 53,333
      and Mr. Zhang, 4,000 shares.
  Equity
Compensation Plan Information
 
 We have
no stock option plan.  However, we have granted compensatory stock
options to our non-management directors, as set forth in the table
below.
 
 Plan
      category
              
              Number
      of securities
                to
      be issued upon
                exercise
      of
                outstanding
      options,
                warrants
      and rights
              
              Weighted
      average
                exercise
      price of
                outstanding
      options,
                warrants
      and rights
              
              Number
      of securities
                remaining
      available for future issuance under equity compensation plans (excluding
      securities reflected in column (a)(a)
              
              (b)
              
              (c)Equity
      compensation plans not approved by security holders
              
              
              110,000
              
              
              $1.47
              
              
              N/ATotal
              
              
              110,000
              
              
              $1.47
              
              
              N/A
  Pension
and Retirement Plans
 
 Currently,
we do not offer any annuity, pension or retirement benefits to be paid to any of
our officers, directors or employees.  As required by China law, the
Company contributes to the “insurance and public housing funds” program defined
by the Department of Labor.  These contributions are similar to the
Social Security and Medicare programs in the US. There are also no compensatory
plans or arrangements with respect to any individual named above which results
or will result from the resignation, retirement or any other termination of
employment with our company, or from a change in our control.
  44
  Item
13.  Certain Relationships and Related Transactions, and Director
Independence
 
 Certain
Relationships and Related Transactions
 
 Three of
our subsidiaries rent their premises from Mr. Tong Liu, our Chairman and CEO.
Mr. Liu has leased the following stores to the Company pursuant to the terms of
binding written lease agreements containing terms no less favorable to the
Company than we could have negotiated in an arm’s length transaction with a
motivated landlord, including substantially the following terms:
 
 
              Harbin
      Daoli Queen Demonstration Beauty Parlor: 5 years from January 1, 2008
      through December 31, 2012, for $47,300 per year, prepaid for 1 year plus
      an option for additional 5 years at no more than $55,000 per
      year.
 
 
              Harbin
      Queen Beauty Demonstration Center: 5 years from January 1, 2008 through
      December 31, 2012 for $20,300 per year, prepaid for 1 year plus an option
      for additional 5 years at no more than $24,000 per
  year.
 
 
              Mege
      Union office:  10-year lease from January 1, 2009 through
      December 31, 2018 for $73,212 per
year.
 
 Our
Chairman, Mr. Liu, is the sole owner of each of the Queen Group
entities.  The entities comprising the Queen Group
are:
 
 
              Harbin
      Huang Emperor & Golden Gym Club Co., Ltd. (SOKO International Fitness
      Center);
 
 
              Harbin
      Daoli Queen Demonstration Beauty Parlor (Daoli
  Spa);
  
              Harbin
      Queen Beauty Demonstration Center (consisting of three facilities, the
      Daowai Spa and two branches, the Nangang Spa and the
      Xuanhua Spa);
 
 
              Harbin
      Xinyang Spa;
 
 
              Harbin
      SOKO Spa;
 
 
              Shenyang
      Queen Beauty Demonstration Co. Ltd. (Shenyang Queen Beauty Spa);
      and
 
 
              Harbin
      Queen Beauty Vocational Skill Training
School.
 
 Our
affiliation with the Queen Group is managed through several exclusive agreements
between the Company, each Queen Group entity and Mr. Liu.  These
agreements are:
 
 1.
              a
      Consulting Services Agreement between Mege Union and the Queen Group
      entity that provides for Mege Union to exclusively provide essential
      services relating to technology, human resources and research and
      development to the Queen Group entity in exchange for a Consulting
      Services Fee;2.
              an
      Operating Agreement between Mege Union and the Queen Group entity that
      prohibits the Queen Group entity from taking certain material actions or
      entering into material agreements, including assuming debt, selling or
      purchasing any assets or rights, using the entity’s assets or rights as
      collateral, or assigning some or all of the business to a third party,
      without the prior written consent of Mege Union;3.
              an
      Option Agreement among Mege Union, the Queen Group entity and the
      shareholders of such entity that grants Mege Union the right to acquire
      all of the shareholders’ interest in the Queen Group entity when, if and
      to the extent permitted by the laws of the People’s Republic of China and
      prohibits the shareholders from otherwise disposing of their interest in
      the Queen Group entity except with the prior written consent of Mege
      Union;4.
              an
      Equity Pledge Agreement among Mege Union, the Queen Group entity and the
      shareholders of such entity that grants Mege Union a pledged interest in
      all of the issued and outstanding interests of the Queen Group, including
      the right of Mege Union to vote such shares, as security for the
      performance of the Queen Group entity’s obligations under the Consulting
      Services Agreement and further; and5.
              a
      Proxy Agreement between Mege Union and the shareholders of the Queen Group
      entity that grants the board of directors of Mege Union an irrevocable
      proxy for the maximum period permitted by law, to vote the shareholders
      shares of the Queen Group entity in such manner and for or against such
      proposals as the board may determine.
  45
  Although each of the Queen Group entities has its own set of agreements with us,
for each entity the terms and conditions of the agreements are identical to the
forms filed as Exhibit 10.9 through 10.13 to this Annual Report on Form
10-K/A.  As a result of the understandings and agreements provided in
the foregoing documents, we effectively control each of the Queen Group
entities.   Except as set forth in these agreements, Mr. Liu is
not entitled to any other compensation in connection with his ownership of the
Queen Group entities.
  Item
14.  Principal Accounting Fees and Services.
 
 The firm
of Bagell Josephs, Levine & Company, LLC (“BJL”) has been selected by the
Audit Committee of our board as the independent registered certified public
accounting firm to audit the books and accounts of our company and its
subsidiaries for the fiscal year ending May 31, 2009. This firm has served as
independent public accountants for our company since May 14, 2008.
 
 The
following table sets forth fees billed to us by BJL for professional services
rendered for fiscal year 2009 and 2008:
 
 2009
              
              
              2008Audit
      Fees
              
              $
              95,000
              
              
              $
              85,000Audit-Related
      Fees
              
              $
              5,000
              
              
              $
              5,000Total
              
              $
              100,000
              
              
              $
              90,000
 
 Audit
Fees. This category includes the aggregate fees billed for professional
services rendered for the audits of our financial statements for fiscal years
2009 and 2008, respectively, for the reviews of the financial statements
included in our quarterly reports on Form 10-Q and for services that are
normally provided by BJL in connection with statutory and regulatory filings or
engagements for the relevant fiscal year.
 
 Audit-Related
Fees. This category includes the aggregate fees billed during the period
for fiscal years 2009 and 2008, respectively, for assurance and related services
by BJL that are reasonably related to the performance of the audits or reviews
of the financial statements and are not reported above under “Audit Fees,” and
generally consist of fees for due diligence accounting consultation with respect
to our registration statements and agreed-upon procedure reports.
 
 The Audit
Committee has considered the compatibility of the non-audit services performed
by and fees paid to BJL in fiscal year 2009 and has determined that such
services and fees were compatible with the independence of the accountants.
During fiscal year 2009, BJL did not utilize any personnel in connection with
the audit other than its full-time, permanent employees.
  Policy for
Approval of Audit and Non-audit Services. The Audit Committee has adopted
an approval policy regarding the approval of audit and non-audit services
provided by the independent accountants, which approval policy describes the
procedures and the conditions pursuant to which the Audit Committee may grant
general pre-approval for services proposed to be performed by our independent
accountants. All services provided by our independent accountants, both audit
and non-audit, must be pre-approved by the Audit Committee.
 
 In
determining whether to approve a particular audit or permitted non-audit
service, the Audit Committee will consider, among other things, whether such
service is consistent with maintaining the independence of the independent
accountant. The Audit Committee will also consider whether the independent
accountant is best positioned to provide the most effective and efficient
service to our company and whether the service might be expected to enhance our
ability to manage or control risk or improve audit quality.
 
 46
 
 PART
IV
 
 Item
15.  Exhibits, Financial Statement Schedules.
 
 (a)(1)(2)
Financial Statements and Financial Statement Schedule.
 
 The
financial statements and financial statement schedules listed in the Index to
Financial Statements beginning on the next page are filed as part of this annual
report.
 
 (a)(3)
Exhibits.
 
 The
exhibits required by this item are set forth on the Exhibit Index
immediately following the signature page of this annual report.
 
 47
  INDEX TO
FINANCIAL STATEMENTS
 
 Page
 Report
      of Independent Registered Public Accounting Firm
              F-1Consolidated
      Balance Sheets as of May 31 2009 (Restated) and 2008
      (Restated)
              F-2Consolidated
      Statements of Income for the Years Ended May 31, 2009 and 2008
      (Restated)
              F-3Statements
      of Changes in Stockholders’ Equity for the Years Ended May 31, 2009 and
      2008 (Restated)
              F-4Statements
      of Cash Flows for the Years Ended May 31, 2009 and 2008
      (Restated)
              F-5Notes
      to Consolidated Financial Statements for the Years Ended May 31, 2009
      (Restated) and 2008 (Restated)
              F-6
 
 
 F-
 
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 The Board
of Directors and Stockholders of
 SOKO
Fitness & SPA Group, Inc.
 
 We have
audited the accompanying consolidated balance sheets of SOKO Fitness & SPA
Group, Inc. as of May 31 2009 and 2008 and the related consolidated statements
of income and other comprehensive income, changes in stockholders’ equity, and
cash flows for the years ended May 31, 2009 and 2008.  SOKO Fitness
& SPA Group, Inc.’s management is responsible for these consolidated
financial statements.  Our responsibility is to express an opinion on
these financial statements based on our audits.
 
 We
conducted our audits in accordance with standards established by of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of SOKO Fitness & SPA
Group, Inc. as of May 31, 2009 and 2008 and the results of its operations,
changes in stockholders’ equity, and cash flows for the years ended May 31, 2009
and 2008 in conformity with accounting principles generally accepted in the
United States of America.
 
 As
discussed in Note 19 to the financial statements, the accompanying financial
statements for the  year ended May 31, 2008 have been
restated.
 
 /s/
Bagell Josephs, Levine & Company, LLC
 
 Bagell
Josephs, Levine & Company, LLC
 Marlton,
New Jersey
 
 
 August
27, 2009 (November 18, 2009 as to the effects of the restatement discussed
in Note 19)
 
 
 F-1
 
 
 SOKO
      FITNESS & SPA GROUP, INC.CONSOLIDATED
      BALANCE SHEETSFOR THE FISCAL YEARS ENDED MAY
      31, 2009 AND 2008 (RESTATED)(IN US
      DOLLARS)AS OF MAY
      31,2009
              
              
              2008(RESTATED)
              
              
              (RESTATED)ASSETSCurrent
      assets:Cash
      & cash equivalents
              
              $
              1,907,640
              
              
              $
              1,563,709Restricted
      cash
              
              
              7,233
              
              
              
              -Accounts
      receivable, net
              
              
              110,541
              
              
              
              682,694Inventories
              
              
              1,391,302
              
              
              
              1,048,788Advances
      to suppliers
              
              
              993,084
              
              
              
              1,467,861Employee
      advance
              
              
              54,783
              
              
              
              249,900Prepaid
      expense
              
              
              146,959
              
              
              
              340,993Total
      Current Assets
              
              
              4,611,542
              
              
              
              5,353,945Property,
      plant and equipment, net of accumulated depreciation
              
              
              19,674,394
              
              
              
              12,782,918Other
      AssetsSecurity
      Deposit
              
              
              47,853
              
              
              
              -Deferred
      Rent
              
              
              589,188
              
              
              
              -Deposit
      to suppliers
              
              
              1,464,530
              
              
              
              720,461Investment
      advance
              
              
              399,750
              
              
              
              1,152,738Goodwill
              
              
              2,525,778
              
              
              
              1,505,710Total
      Other Assets
              
              
              5,027,099
              
              
              
              3,378,909Total
    Assets
              
              
              29,313,035
              
              
              
              21,515,772LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short-term
      loans
              
              
              2,196,795
              
              
              
              2,547,244Accounts
      payable, accrued expenses and other payable
              
              
              471,457
              
              
              
              1,020,232Unearned
      revenue
              
              
              1,909,755
              
              
              
              514,965Taxes
      payable
              
              
              360,229
              
              
              
              339,555Contingent
      Liability
              
              
              200,000
              
              
              
              -Total
      Current Liabilities
              
              
              5,138,236
              
              
              
              4,421,996Stockholders’
      EquityPreferred
      Stock, $.001 par value; 10,000,000 shares authorized;-
      0 - shares issued and outstanding at May 31,2009 and 2008
              
              
              -
              
              
              
              -Common
      stock, $0.001 Par value; 500,000,000 shares authorized;17,000,000
      shares issued and outstandingat
      May 31, 2009 and 2008
              
              
              17,000
              
              
              
              17,000Additional
      paid-in-capital
              
              
              2,346,397
              
              
              
              2,297,776Additional
      paid-in-capital - Warrants
              
              
              639,253
              
              
              
              639,253Accumulated
      other comprehensive income
              
              
              1,910,752
              
              
              
              1,625,829Retained
      earnings
              
              
              19,215,114
              
              
              
              12,184,614Total
      Stockholders’ Equity
              
              
              24,128,516
              
              
              
              16,764,472Noncontrolling
      interest
              
              
              46,283
              
              
              
              329,304Total
      Equity
              
              
              24,174,799
              
              
              
              17,093,776Total Liabilities and
      Stockholders’ Equity
              
              $
              29,313,035
              
              
              $
              21,515,772
 
 The
accompanying notes are an integral part of these consolidated financial
statements
 
  F-2
   SOKO
      FITNESS & SPA GROUP, INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR THE FISCAL YEARS ENDED MAY
      31, 2009 AND 2008 (RESTATED)(IN US
      DOLLAR)FOR THEFISCALYEARS ENDED
      MAY 31,2009
              
              
              2008
                (RESTATED)Net
      Sales
              
              $
              19,569,108
              
              
              $
              13,963,130Cost
      of Sales
              
              
              (6,591,906
              )
              
              
              (5,010,643
              )Gross
      Profit
              
              
              12,977,202
              
              
              
              8,952,487Selling,
      General and Administrative Expenses:
              
              
              5,902,059
              
              
              
              4,009,497Operating
      income
              
              
              7,075,143
              
              
              
              4,942,990Other
      Income and ExpensesInterest
      expenses
              
              
              (66,121
              )
              
              
              (49,177
              )Other
      income
              
              
              47,012
              
              
              
              2,357Penalty
      for investors’’ liquidated damages
              
              
              (200,000
              )
              
              
              -Other
      expenses
              
              
              (70,731
              )
              
              
              (10,328
              )Total
      Other Income and (Expense)
              
              
              (289,840
              )
              
              
              (57,148
              )Income
      Before Income Taxes
              
              
              6,785,303
              
              
              
              4,885,842Provision
      for Income Taxes
              
              
              42,667
              
              
              
              74,381Net
      Income
              
              
              6,742,636
              
              
              
              4,811,461Less:
      net income (loss) attributable to the noncontrolling
    interest
              
              
              (287,865
              )
              
              
              108,481Net
      Income attributable to SOKO Fitness & Spa Group, Inc.
              
              $
              7,030,500
              
              
              $
              4,702,980Other
      Comprehensive IncomeForeign
      currency translation adjustment
              
              
              284,923
              
              
              
              1,217,693Comprehensive
      Income
              
              $
              7,315,423
              
              
              $
              5,920,672Basic
      and Diluted Income per common shareBasic
              
              $
              0.41
              
              
              $
              0.34Diluted
              
              $
              0.41
              
              
              $
              0.33Weighted
      average common share outstandingBasic
              
              
              17,000,000
              
              
              
              13,816,986Diluted
              
              
              17,297,931
              
              
              
              14,118,795
 
 The
accompanying notes are an integral part of these consolidated financial
statements
 
 
 F-3
 
 SOKO
FITNESS & SPA GROUP, INC.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
 FOR
THE FISCAL YEARS ENDED MAY 31, 2009 AND 2008 (RESTATED)
 (
IN US DOLLARS)
 
 Preferred
      Stock
                
                Common
      Stock
                
                
                
                
                
                
                
                Warrants
                
                Accumulated Other
                
                
                
                
                
                
                
                Totalpar
      value $0.001
                
                par
      value $0.001
                
                
                Subscrip-
                
                
                Additional
                
                Number
                Additional
                
                Comprehe-
                
                
                
                Non
                
                
                Stockhol-tion
                
                
                Paid-in
                
                of
                
                Paid
      in
                
                nsive
                
                
                Retained
                controlling
                
                
                ders’Shares
                
                Amount
                
                Shares
                
                Amount
                
                Receivable
                
                
                Capital
                
                Warrants
                
                Capital
                
                Income
                
                
                Earnings
                Interest
                
                
                EquityBalance
      at May 31,2007
                -
                
                $
                -
                
                13,300,000
                
                
                $
                13,300
                
                $
                (1,000,000
                )
                $
                1,140,279
                
                -
                $
                -
                
                $
                408,136
                
                $
                7,481,634
                $
                -
                
                $
                8,043,349Purchase
      of subsidiary sharesfrom
      a third party
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                218,153
                
                
                218,153Paid
      in capital received
                
                
                
                
                
                
                
                
                
                
                
                
                1,000,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,000,000Acquisition
      of net asset from SOKO in the reverse merger
                
                
                
                
                
                3,000,000
                
                
                
                3,000
                
                
                
                
                
                (3,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Issuance
      of common stock and warrantsin
      connection with private placement
                
                
                
                
                
                2,510,000
                
                
                
                2,510
                
                
                
                
                
                1,076,737
                
                2,160,000
                
                639,253
                
                
                
                
                
                
                
                
                
                
                1,718,500Issuance
      of common stockin
      connection with share exchange
                
                
                
                
                
                765,000
                
                
                
                765
                
                
                
                
                
                481,185
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                481,950Buyback
      and cancellation of common stock
                
                
                
                
                
                (2,575,000
                )
                
                
                (2,575
                )
                
                
                
                
                (397,425
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                (400,000
                )Net
      Income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,702,980
                
                108,481
                
                
                4,811,461Other
      comprehensive income, net of tax
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,217,693
                
                
                
                
                2,670
                
                
                1,220,363Foreign
      currency translation adjustmentBalance
      at May 31, 2008
                  (Restated)
                -
                
                $
                -
                
                17,000,000.00
                
                
                $
                17,000
                
                $
                -
                
                $
                2,297,776
                
                2,160,000
                $
                639,253
                
                $
                1,625,829
                
                $
                12,184,614
                $
                329,304
                
                $
                17,093,776Issuance
      of stock options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                48,621
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                48,621Net
      Income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,030,500
                
                (287,865
                )
                
                6,742,635Other
      comprehensive income, net of taxForeign
      currency translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                284,923
                
                
                
                
                4,844
                
                
                289,767Balance
      at May 31, 2009
                  (Restated)
                -
                
                $
                -
                
                17,000,000.00
                
                
                $
                17,000
                
                $
                -
                
                $
                2,346,397
                
                2,160,000
                $
                639,253
                
                $
                1,910,752
                
                $
                19,215,114
                $
                46,284
                
                $
                24,174,799
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-4
   SOKO
      FITNESS & SPA GROUP, INC.CONSOLIDATED STATEMENTS OF CASH
      FLOWSFOR THE FISCAL YEARS ENDED MAY
      31, 2009 AND 2008 (RESTATED)( IN US
      DOLLARS)FOR THEFISCALYEARS ENDED MAY
      31,2009
                (RESTATED)
              
              
              2008
                (RESTATED)Cash
      Flows From Operating Activities:Net
      income
              
              $
              6,742,636
              
              
              $
              4,811,461Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Stock
      based compensation
              
              
              48,621
              
              
              
              481,950Depreciation
              
              
              1,719,398
              
              
              
              1,016,855Liquidated
      damage penalty
              
              
              200,000
              
              
              
              -Loss
      from disposal of fixed assets
              
              
              54,809
              
              
              
              -Rent
      expense converted from leasehold improvement
              
              
              163,229
              
              
              
              -Changes
      in operating assets and liabilities:Restricted
      cash
              
              
              (7,219
              )
              
              
              -Accounts
      receivable
              
              
              605,326
              
              
              
              (270,326
              )Inventories
              
              
              (302,677
              )
              
              
              (584,845
              )Advances
      to suppliers
              
              
              503,705
              
              
              
              (279,736
              )Employee
      advance
              
              
              198,831
              
              
              
              (163,600
              )Prepaid
      expense
              
              
              265,225
              
              
              
              (254,681
              )Security
      deposit
              
              
              (47,761
              )
              
              
              -Deferred
      Rent
              
              
              (588,061
              )
              
              
              -Deposit
      to suppliers
              
              
              (730,864
              )
              
              
              6,816Accounts
      payable
              
              
              7,283
              
              
              
              (33,815
              )Unearned
      revenue
              
              
              1,367,451
              
              
              
              6,948Taxes
      payable
              
              
              15,018
              
              
              
              203,532Accrued
      expenses and other payables
              
              
              (829,923
              )
              
              
              (82,086
              )Cash
      provided by operating activities
              
              
              9,385,023
              
              
              
              4,858,473Cash
      Flows From Investing Activities:Addition
      in construction in progress
              
              
              (5,312,845
              )
              
              
              (2,665,759
              )Purchase
      of property and equipment
              
              
              (3,061,979
              )
              
              
              (3,293,245
              )Proceeds
      received from disposal of fixed assets
              
              
              1,316Investment
      in subsidiary
              
              
              -
              
              
              
              (1,687,408
              )Cash
      acquired from subsidiaries
              
              
              97,594
              
              
              
              124,447Investment
      advance
              
              
              (399,750
              )
              
              
              (1,090,545
              )Cash
      used in investing activities
              
              
              (8,675,665
              )
              
              
              (8,612,510
              )Cash
      Flows From Financing Activities:Proceeds
      from capital contribution
              
              
              -
              
              
              
              1,000,000Net
      proceeds from issuance of common stock
              
              
              -
              
              
              
              1,718,500Proceeds
      from short-term loan
              
              
              2,196,795
              
              
              
              2,409,815Repayment
      of short-term loan
              
              
              (2,588,227
              )
              
              
              -Payment
      to buy back common stock
              
              
              -
              
              
              
              (400,000)Cash
      provided by (used in) financing activities
              
              
              (391,432
              )
              
              
              4,728,315Effect
      of exchange rate changes on cash and cash equivalents
              
              
              26,005
              
              
              
              133,316Increase
      in cash and cash equivalents
              
              
              343,931
              
              
              
              1,107,594Cash
      and Cash Equivalents - Beginning of the year
              
              
              1,563,709
              
              
              
              456,115Cash
      and Cash Equivalents - Ending of the year
              
              $
              1,907,640
              
              
              $
              1,563,709Supplemental
      disclosures of cash flow information:Interest
      paid
              
              $
              66,121
              
              
              $
              49,042Income
      Taxes paid
              
              $
              74,135
              
              
              $
              9,427Non-cash
      investing and financing activities:Option
      issued for directors
              
              $
              109,898
              
              
              $
              -Common
      stock issued for share exchange
              
              
              -
              
              
              $
              481,950
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-5
 
 SOKO
FITNESS & SPA GROUP, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE  FISCAL YEARS ENDED MAY 31, 2009 AND 2008 (RESTATED)
 
 
 NOTE
1- DESCRIPTION OF BUSINESS AND ORGANIZATION
 
 SOKO
Fitness & Spa Group, Inc., (“SOKO” or the “Company”) was incorporated in the
State of Delaware on September 9, 2004 under the original name of American
Business Holdings, Inc. as a holding vehicle to own and control a textile and
plastic packaging company in Central and East Africa. On September 12, 2004, the
Company completed a Stock Purchase Agreement and Share Exchange in which it
purchased all of the outstanding membership shares in Tissakin Ltd., a
Democratic Republic of Congo corporation. Through Tissakin Ltd., the Company was
a manufacturer of bags for packaging agricultural products in the Democratic
Republic of Congo.
 
 On April
11, 2008 (the “Closing Date”), the Company entered into a Share Exchange
Agreement with Wealthlink Co., Ltd. (“Wealthlink”) and its shareholders
(including Mr. Tong Liu, the Company’s current Chairman of the Board and Chief
Executive Officer, collectively, the Wealthlink Shareholders’ pursuant to which
the Company issued an aggregate of 13,300,000 shares of common stock of the
Company to the Wealthlink Shareholders, in exchange for all of the outstanding
shares of common stock of Wealthlink.
 
 Concurrently
with the Share Exchange, the Company provided $400,000 to Mr. Tong Liu to
purchase 1,000,000 shares of Company common stock from Mr. Syed Idris
Husain (“Idris Husain”), then director and the principal stockholder of the
Company, and an aggregate of 1,575,000 shares of common stock from certain other
original shareholders of the Company with the understanding that Mr. Tong Liu
would immediately return these 2,575,000 shares to the Company for
cancellation. Following the purchase of these 2,575,000 shares by Mr. Tong
Liu on the Closing Date, Mr. Tong Liu immediately returned them to the Company
as agreed for cancellation.
 
 Also on
the Closing Date, the Company entered into a Consulting Agreement with Idris
Husain,
pursuant to which he was engaged to provide the Company with regular and
customary consulting advice as requested by the Company for a period of six
months from the Closing Date. Pursuant to this Consulting Agreement, the
Company paid Idris Husain$300,000 in
consideration of such services on the Closing Date.
 
 Also, on
the Closing Date, immediately prior to and as a condition to the completion of
the Share Exchange, the Company entered into a Stock Purchase Agreement with
each of Syed Irfan Husain, the Company’s then President and Chief Executive
Officer, Idris Husain, and Verifica International, Ltd. (collectively, the
“Buyers”).  Pursuant to this agreement, the Buyers purchased all
issued and outstanding shares of Tissakin Ltd., a Democratic Republic of Congo
corporation and a wholly-owned subsidiary of the Company, in consideration of
79,000,000 shares of common stock of the Company owned by the
Buyers.
 
 Additionally,
on the Closing Date, SOKO entered into a Securities Purchase Agreement, Warrant,
Registration Rights Agreement and Lock-Up Agreement with three investors (the
“Purchasers”) for an aggregate of $2,000,000 (the “Financing”). On the Closing
Date, upon the terms and subject to the conditions set forth in the Securities
Purchase Agreement, SOKO sold, and the Purchasers purchased, in the aggregate,
2,000,000 shares of our common stock and warrants to purchase an additional
2,000,000 shares. The warrants have an exercise price of $1.25 and are
exercisable at any time through the third anniversary of the Closing Date.
Additionally, each Purchaser’s ability to exercise the warrant is limited to the
extent such Purchaser’s beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) would exceed
4.99% of the SOKO’s outstanding common stock. From the Closing Date and through
the twelve-month anniversary of the Closing Date, certain SOKO shareholders
agreed not to sell any of their shares of our common stock. The Company is
obligated to file a registration statement with respect to the shares and
warrants acquired by the Purchasers within 60 calendar days of the Closing
Date.
  F-6
  Prior
      to the consummation of the foregoing transactions, the Company had
      82,000,000 shares of common stock outstanding.  As a result of
      the consummation of all of the foregoing transactions, the following
      changes in the outstanding shares of the Company were
      recorded:
  ●
                the
      Company reacquired 79,000,000 shares from its original shareholders in
      connection with the acquisition by such shareholders of Tissakin
      Ltd.;●
                Mr.
      Liu acquired, with funds provided by the Company, 2,575,000 shares from
      certain original shareholders of the Company and returned such shares to
      the Company for cancellation; and●
                an
      additional 425,000 shares remained held by certain original shareholders
      of the Company.From
      the 81,575,000 shares that were reacquired and acquired as described
      above:●
                the
      Company issued an additional 13,300,00 shares to Wealthlink Shareholders,
      including Mr. Liu;●
                the
      Company issued an aggregate of 765,000 shares to several advisors of the
      Company for structuring the share exchange transaction;●
                the
      Purchasers acquired 2,000,000 shares and warrants to purchase up to an
      additional 2,000,000 shares;●
                the
      Company issued an aggregate of 510,000 shares to Luck Eagle for
      structuring the Financing;●
                E-Tech
      Securities Inc. was issued a warrant to purchase up to 160,000 shares for
      structuring the Financing; and●
                the
      Company cancelled 65,000,000 shares.As
      a result, the Company now has 17,000,000 shares of common stock
      outstanding, which is comprised of 16,575,000 shares issued in connection
      with the foregoing and 425,000 shares held by certain original
      shareholders of the Company.
  As a
result of the aforementioned transactions, there has been a change in control of
the Company as the shareholders of Wealthlink became the majority shareholders
of the Company.
 
 For
accounting purpose, the transaction has been accounted for as a reverse
acquisition under the purchase method. Accordingly, Wealthlink and its
subsidiaries are treated as the continuing entity for accounting purposes.
Following the merger, the Company changed its name from American Business
Holdings, Inc. to SOKO Fitness & Spa Group, Inc.
 
 As a
result of the merger, the Company is now engaged in the business of operating
distinctive destination centers that offer professional fitness, beauty salon
and spa services in China. The Company provides programs, services and products
that uniquely combine exercise, education and nutrition to help its members and
clients to lead a healthy way of life and achieve their fitness
goals.
 
 Wealthlink
was incorporated under the laws of the Cayman Islands on March 27, 2007. On June
19, 2007, Wealthlink invested $1,000,000 to form a wholly-owned subsidiary,
Harbin Mege Union Beauty Management Ltd. (“Mege Union”), a wholly foreign-owned
entity incorporated under the laws of the People’s Republic of
China.
 
 Except
for its directly owned Lea Spa, and majority-owned subsidiary, Yoga Wave, Mege
Union has not carried on any other substantive operations of its own. Instead,
it has entered certain exclusive agreements with Harbin Daoli Queen
Demonstration Beauty Parlor, Harbin Huang Emperor & Golden Gym Club Co.
Ltd., Harbin Queen Beauty Demonstration Center, Shenyang Queen Demonstration
Center, Harbin Xinyang Spa, Harbin SOKO Spa and Harbin Queen Beauty Vocational
Skill Training School (collectively, the “Queen Group”). The entities in Queen
Group are all organized in China as either limited liability companies or sole
proprietorships.
  F-7
  The
paid-in capital of Queen Group was funded by the majority stockholders of Mege
Union. China law currently has limits on foreign ownership of companies. To
comply with these foreign ownership restrictions, on August 3, 2007, Mege Union
entered into certain exclusive agreements with Queen Group and its stockholders.
Pursuant to these agreements, Mege Union provides exclusive consulting and other
general business operation services to Queen Group, in return for a consulting
services fee which is equal to Queen Group’s revenue. In addition, Queen Group’s
shareholders have pledged their equity interest in Queen Group to Mege Union,
irrevocably granted Mege Union an exclusive option to purchase, to the extent
permitted under China law, all or part of the equity interests in Queen Group
and agreed to entrust all the rights to exercise their voting power to the
person(s) appointed by Mege Union. Through these contractual arrangements, Mege
Union has the ability to substantially influence Queen Group’s daily operations
and financial affairs, appoint its senior executives and approve all matters
requiring stockholders’ approval.
 
 As a
result of these contractual arrangements, which obligate Mege Union to absorb a
majority of the risk of loss from Queen Group’s activities and enable Mege Union
to receive a majority of its expected residual returns, Mege Union accounts for
Queen Group as a variable interest entity under Financial Accounting Standards
Board (“FASB”) Interpretation No. 46R (“FIN 46R”) “Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51”. Accordingly, Mege Union
consolidates Queen Group’s results, assets and liabilities.
  Since
Mege Union and Queen Group are under common control, the consolidation of Mege
Union and Queen Group has been accounted for at historical cost and prepared on
the basis as if the aforementioned exclusive agreements between Mege Union and
Queen Group had become effective as of the beginning of the first period
presented in the accompanying consolidated financial statements.
 
 On May
13, 2008, the Board of Directors of SOKO approved an amendment to the Company’s
Bylaws to change the Company’s fiscal year from a fiscal year ending on December
31 to a fiscal year ending on May 31.
 
 NOTE
2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis
of Presentation
 
 The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the financial statements of SOKO,
Wealthlink, Mege Union and its wholly-owned subsidiaries, Lea Spa and
majority-owned Yoga Wave as well as Mege Union’s variable interest entity, Queen
Group. The Company, its subsidiaries and the Queen Group are collectively
referred to as the “Group.” All significant inter-company transactions and
balances among the Company, its subsidiaries and the Queen Group are eliminated
upon consolidation.
 
 Use
of Estimates
 
 In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. Significant estimates, required by management, include the
recoverability of long-lived assets and the valuation of
inventories.  Actual results could differ from those
estimates.
 
 Acquisitions
 
 The
purchase method of accounting is used to account for the acquisition of
subsidiaries by the Company. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the
Company’s share of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is allocated as a pro rata reduction of the
amounts of the acquired assets, except for financial assets and current assets.
The residual amount, if any, is recognized directly in the consolidated
statements of operations and comprehensive income.
  F-8
 
 Cash
and Cash Equivalents
 
 For
purposes of the statement of cash flow, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
 
 Accounts
and Other Receivables
 
 Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible amounts, as
needed.
 
 The
Company uses the aging method to estimate the valuation allowance for
anticipated uncollectible receivable balances. Under the aging method, bad debt
percentages determined by management based on historical experience as well as
current economic climate are applied to customers’ balances categorized by the
number of months the underlying invoices have remained outstanding. The
valuation allowance balance is adjusted to the amount computed as a result of
the aging method. When facts subsequently become available to indicate that the
allowance provided requires an adjustment, then the adjustment will be
classified as a change in estimate. There is no allowance for uncollectible
amounts for the fiscal years ended May 31, 2009 and 2008.
 
 Inventories
 
 Inventory
is mainly composed of hair care supplies and skin care supplies. Inventories are
stated at the lower of cost or market, as determined on a first-in, first-out
basis, or market. Costs of inventories include unused purchases and supplies for
providing the beauty treatment. No allowance for inventories is considered
necessary for the fiscal years ended May 31, 2009 and 2008,
respectively.
 
 Property,
Equipment and Construction in Progress
 
 Property
and equipment are stated at cost, net of accumulated
depreciation.  Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Estimated useful lives of the
assets are as follows:
  Building
              15
      yearsBuilding
      Improvements
              10
      yearsMachinery
      and equipment
              5 yearsComputer,
      office equipment and furniture
              5 yearsAutomobiles
              5 years
 
 The
carrying value of property, plant and equipment is assessed annually and when
factors indicating impairment is present, the carrying value of the fixed assets
is reduced by the amount of the impairment. The Company determines the existence
of such impairment by measuring the expected future cash flows (undiscounted and
without interest charges) and comparing such amount to the net asset carrying
value. An impairment loss, if exists, is measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
 
 Construction
in progress represents direct costs of construction or acquisition and design
fees incurred. Capitalization of these costs ceases and the construction in
progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are completed.
No depreciation is provided until it is completed and ready for intended
use. For the fiscal years ended May 31, 2009 and 2008, the Company had
total accumulated costs involved with construction in progress in the amount of
$1,534,827 and $3,687,591, respectively.
 
 F-9
  Interest
capitalization
 
 Interest
capitalization is reported in accordance with the provisions of ASC 835,
“Capitalization of Interest Cost.”
 
 For loans
to finance constructions and provide for working capital, the Company
charges the borrowing costs related to working capital loans to interest expense
when incurred and capitalize interest costs related to construction developments
as a component of the construction costs. The interest to be capitalized for a
construction is based on the amount of borrowings related specifically to such
construction. Interest for any period is capitalized based on the amounts of
accumulated expenditures and the interest rate of the loans. The interest
capitalization period begins when expenditures have been incurred and activities
necessary to prepare the asset (including administrative activities before
construction) have begun, and ends when the construction is substantially
completed. Interest capitalized is limited to the amount of interest
incurred.  The interest rate used in determining the amount of
interest capitalized is the weighted average rate applicable to the
construction-specific borrowings.
  The
Company’s significant judgments and estimates related to interest capitalization
include the determination of the appropriate borrowing rates for the
calculation, and the point at which capitalization is started and discontinued.
Changes in the rates used or the timing of the capitalization period may affect
the balance of property under development and the costs of sales recorded.
Capitalized interest included in construction in progress amounted to $61,432
and $26,060 for the fiscal years ended May 31, 2009 and May 31, 2008,
respectively.
 
 Goodwill
  Goodwill
and other intangible assets are accounted for in accordance with the provisions
of ASC 350, “Goodwill and Other Intangible Assets”. Under ASC 350, goodwill,
including any goodwill included in the carrying value of investments accounted
for using the equity method of accounting, and certain other intangible assets
deemed to have indefinite useful lives are not amortized. Rather, goodwill and
such indefinite-lived intangible assets are assessed for impairment at least
annually based on comparisons of their respective fair values to their carrying
values.
 
 Goodwill
impairment is determined using a two-step process. The first step compares the
fair value of each reporting unit to its carrying amount, including goodwill. If
the fair value of each reporting unit exceeds its carrying amount, goodwill is
not considered to be impaired and the second step will not be required. If the
carrying amount of a reporting unit exceeds its fair value, the second step
compares the implied fair value of goodwill to the carrying value of a reporting
unit’s goodwill. The implied fair value of goodwill is determined in a manner
similar to accounting for a business combination with the allocation of the
assessed fair value determined in the first step to the assets and liabilities
of the reporting unit. The excess of the fair value of the reporting unit over
the amounts assigned to the assets and liabilities is the implied fair value of
goodwill. An impairment loss is recognized for any excess in the carrying value
of goodwill over the implied fair value of goodwill. Estimating fair value is
performed by utilizing various valuation techniques, with the primary technique
being a discounted cash flow.
 
 In
evaluating long-lived assets, other than goodwill for
recoverability, the Company uses its best estimate of future cash
flows expected to result from the use of the asset and eventual disposition in
accordance with ASC 360. To the extent that estimated future, undiscounted cash
inflows attributable to the asset, less estimated future, undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in
an amount equal to the difference between the carrying value of such asset and
its fair value. Assets to be disposed of and for which there is a committed plan
of disposal, whether through sale or abandonment, are reported at the lower of
carrying value or fair value less costs to sell.  There was no
impairment losses recognized for the periods presented.
 
 Impairment
of Long-lived Assets
 
 In
evaluating long-lived assets, other than goodwill for
recoverability, the Company uses its best estimate of future cash
flows expected to result from the use of the asset and eventual disposition in
accordance with ASC 360. To the extent that estimated future, undiscounted cash
inflows attributable to the asset, less estimated future, undiscounted cash
outflows, are less than the carrying amount, an impairment loss is recognized in
an amount equal to the difference between the carrying value of such asset and
its fair value. Assets to be disposed of and for which there is a committed plan
of disposal, whether through sale or abandonment, are reported at the lower of
carrying value or fair value less costs to sell.   There were no
impairment losses recognized for the fiscal years ended May 31, 2009 and
2008.
  F-10
  Stock-Based
Compensation
 
 The
Company records stock based compensation expense pursuant to ASC 718. The
Company estimates the fair value of the award using the Black-Scholes Option
Pricing Model. Under ASC 718, the Company’s expected volatility assumption is
based on the historical volatility of Company’s stock. The expected life
assumption is primarily based on historical exercise patterns and employee
post-vesting termination behavior. The risk-free interest rate for the expected
term of the option is based on the U.S. Treasury yield curve in effect at the
time of grant.
 
 Stock
compensation expense recognized is based on awards expected to vest, and there
were no estimated forfeitures. ASC 718 requires forfeitures to be estimated at
the time of grant and revised in subsequent periods, if necessary, if actual
forfeitures differ from those estimates.
 
 Revenue
Recognition
 
 The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104.  Sales revenue is generally recognized when the
services are provided and payments of the customers are received or collections
are reasonably assured. Payments received in advance from members but not yet
earned are recorded as deferred revenue.
 
 Non-refundable
membership fees, non-refundable initial membership fees and monthly membership
fees that are prepaid on a non refundable basis are recognized on a
straight-line basis over the respective membership term.
 
 Cost
of Sales
 
 Costs of
sales include costs of the products sold and used, inbound freight costs, cost
of direct labor and overhead. Write-down of inventory to lower of cost or market
is also recorded in cost of sales.
 
 Selling,
General and administrative Costs
 
 Selling,
general and administrative costs consist primarily of salaries and commissions
for sales representatives, salaries for administrative staffs, rent expenses,
depreciation expense and employee benefits for administrative
staffs.
 
 Comprehensive
Income
 
 Statement
of Financial Accounting Standards ASC 220,
 “Reporting
Comprehensive Income”, requires disclosure of all components of comprehensive
income and loss on an annual and interim basis. Comprehensive income and loss is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Accumulated other comprehensive income arose from the changes in foreign
currency exchange rates.
 
 Income
Taxes
 
 The
Company accounts for income tax under the provisions of ASC 740 “Accounting for
Income Taxes”, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns.  Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each period end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, whenever necessary,
against net deferred tax assets when it is more likely than not that some
portion or all of the deferred tax asset will not be
realized.


F-11
 
 Fair
Value of Financial Instruments
 
 The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, advances to suppliers, other receivables, accounts payable, accrued
expenses, taxes payable, notes payable and other loans payable. Management has
estimated that the carrying amounts approximate their fair value due to the
short-term nature.
 
 Earnings
per Share
 
 The
Company computes earnings per share (“EPS’) in accordance with ASC 260 “Earnings
per Share” (“ASC 260”), and SEC Staff Accounting Bulletin No. 98 (“SAB
98”).  ASC 260 requires companies with complex capital structures to
present basic and diluted EPS.  Basic EPS is measured as net income divided
by the weighted average common shares outstanding for the period.  Diluted
EPS is similar to basic EPS but presents the dilutive effect on a per share
basis of potential common shares (e.g., convertible securities, options and
warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later.  Potential common shares that have
an anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
 
 Foreign
Currency Translation
 
 The
Company uses the United States dollar (“US Dollars”) for financial reporting
purposes. Mege Union, its subsidiaries, and the Queen Group maintain their books
and records in their functional currency, Chinese Renminbi (“RMB”), being the
primary currency of the economic environment in which their operations are
conducted.
 
 In
general, for consolidation purposes, the Company translates its assets and
liabilities into US Dollars using the applicable exchange rates prevailing at
the balance sheet date, and the statement of income and cash flows are
translated at average exchange rates during the reporting period. As a
result, amounts related to assets and liabilities reported on the statement of
cash flows will not necessarily agree with changes in the corresponding balances
on the balance sheet. Equity accounts are translated at historical rates.
Adjustments resulting from the translation of the financial statements are
recorded as accumulated other comprehensive income.
 
 This
quotation of the exchange rates does not imply free convertibility of RMB to
other foreign currencies. At May 31, 2009, the exchange rate was $1.00 =
RMB6.8281. The weighted average translation rate of $1.00 = RMB6.8412 was
applied to the Company’s annual income statement ended May 31,
2009.
 
 Statement
of Cash Flows
 
 In
accordance with ASC 230, “Statement of Cash Flows,” cash flows from the
Company’s operations is calculated based upon the local
currencies.  As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet.
 
 Risks
of Losses
 
 The
Company is potentially exposed to risks of losses that may result from business
interruptions, injury to others (including employees) and damage to
property.  These losses may be uninsured, especially due to the fact
that the Company’s operations are in China, where business insurance is not
readily available.  If: (i) information is available before the
Company’s financial statements are issued or are available to be issued
indicates that such loss is probable and (ii) the amount of the loss can be
reasonably estimated, an estimated loss will be accrued by a charge to
income.  If such loss is probable but the amount of loss cannot be
reasonably estimated, the loss shall be charged to the income of the period in
which the loss can be reasonably estimated and shall not be charged
retroactively to an earlier period.  As of May 31, 2009 and 2008, the
Company has not experienced any uninsured losses from injury to others or other
losses.
  F-12
  New
Accounting Pronouncements
 
 In May
2009, the FASB issued guidance related to subsequent events under ASC 855-10,
Subsequent Events. This guidance sets forth the period after the balance sheet
date during which management or a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date, and the disclosures that an entity
should make about events or transactions that occurred after the balance sheet
date. It requires disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, whether that date represents the
date the financial statements were issued or were available to be issued. This
guidance is effective for interim and annual periods ending after June 15, 2009.
We have included the required disclosures in our consolidated condensed
financial statements.
 
 In June
2009, the FASB issued an amendment to ASC 810-10, Consolidation. This guidance
amends ASC 810-10-15 to replace the quantitative-based risks and rewards
calculation for determining which enterprise has a controlling financial
interest in a VIE with a primarily qualitative approach focused on identifying
which enterprise has the power to direct the activities of a VIE that most
significantly impact the entity’s economic performance. It also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE and
requires additional disclosures about an enterprise’s involvement in VIEs. This
guidance is effective as of the beginning of the reporting entity’s first annual
reporting period that begins after November 15, 2009 and earlier adoption is not
permitted. We are currently evaluating the potential impact, if any, of the
adoption of this guidance will have on our consolidated condensed financial
statements.
 
 In June
2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC
105, Generally Accepted Accounting Principles. This guidance states that the ASC
will become the source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. Once effective, the Codification’s content
will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be
modified to include only two levels of U.S. GAAP: authoritative and
non-authoritative. This is effective for financial statements issued for interim
and annual periods ending after September 15, 2009. We adopted  ASC
105 as of September 30, 2009 and thus have incorporated the new Codification
citations in place of the corresponding references to legacy accounting
pronouncements.
 
 In August
2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring
Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and
Disclosures. This Update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure the fair value using one or more of the
following techniques: a valuation technique that uses the quoted price of the
identical liability or similar liabilities when traded as an asset, which would
be considered a Level 1 input, or another valuation technique that is consistent
with ASC 820. This Update is effective for the first reporting period (including
interim periods) beginning after issuance. Thus, we adopted this guidance as of
September 30, 2009, which did not have a material impact on our consolidated
condensed financial statements.
 
 In
September 2009, the Financial Accounting Standards Board (FASB) amended existing
authoritative guidance to improve financial reporting by enterprises involved
with variable interest entities and to provide more relevant and reliable
information to users of financial statements. The amended guidance is effective
for fiscal annual reporting periods beginning after November 15, 2009, for
interim periods within that first annual reporting period, and for interim and
annual reporting periods thereafter. The Company is currently assessing the
impact, if any, adoption may have on its financial
statements or disclosures.
 
 
 NOTE 3-ADVANCES TO SUPPLIERS
 
 The Group
makes advances to certain vendors for inventory purchases. The Advances to
Suppliers were $993,084 and $1,467,861 as of May 31, 2009 and 2008,
respectively.
  F-13
 
 Below is
the breakdown of advances to major suppliers:
 
 As
      of May 31,2009
              
              
              2008Major
      supplier A
              
              $
              993,084
              
              
              $
              882,295Major
      supplier B
              
              
              -
              
              
              
              164,387Major
      supplier C
              
              
              -
              
              
              
              110,690Others
              
              
              -
              
              
              
              310,488Total
              
              $
              993,084
              
              
              $
              1,467,861
  F-14
 
 NOTE
4-INVENTORIES
 
 The
inventories consist of the following:
 
 As
      of May 31,2009
              
              
              2008Skin
      Care supplies
              
              $
              1,348,105
              
              
              $
              1,018,517Hair
      Care supplies
              
              
              39,965
              
              
              
              30,271Other
      supplies
              
              
              3,232
              
              
              
              -Total
              
              $
              1,391,302
              
              
              $
              1,048,788
 
 No
allowance for inventories was made for the fiscal years ended May 31, 2009 and
2008.
 
 NOTE
5-EMPLOYEE ADVANCE
 
 The
Employee Advance was $54,783 and $249,900 as of May 31, 2009 and
2008.  The Employee Advance was made to certain employees by the
Company in order for them to pay the travel expenses, office supplier expenses
or any other miscellaneous expenses in future.
 
  NOTE
6-PROPERTY AND EQUIPMENT, NET
 
 As
      of May 31,2009
              
              
              2008Machinery
      & Equipments
              
              $
              3,289,848
              
              
              $
              1,830,649Office
      Equipment & Furniture
              
              
              1,116,610
              
              
              
              526,221Automobiles
              
              
              92,379
              
              
              
              86,639Buildings
              
              
              1,772,081
              
              
              
              1,743,516Leasehold
      improvements
              
              
              15,004,204
              
              
              
              7,156,757Sub-total
              
              
              21,275,122
              
              
              
              11,343,781Less:
      Accumulated Depreciation
              
              
              (3,135,554
              )
              
              
              (2,248,454
              )Construction
      in progress
              
              
              1,534,827
              
              
              
              3,687,591Total
              
              $
              19,674,394
              
              
              $
              12,782,918
 
 Depreciation
expense for the fiscal years ended May 31, 2009 and May 31, 2008 was $1,719,398
and $1,016,855, respectively.
 
 NOTE
7-DEPOSITS TO SUPPLIERS
 
 The
Deposits to Suppliers of $1,464,530 and $720,461 as of May 31, 2009 and 2008
represents deposit made to two major suppliers, with whom the Company has long
standing business relationships. In order to maintain the relationships and
purchase the products and equipment under the most favorable terms, the Company
made the deposit.  Since the Company expects the entire amount will be
repaid, no allowance has been established.
  F-15
  NOTE
8-INVESTMENT ADVANCE
 
 On May
31, 2009, Mege Union entered into an acquisition agreement with Starway Asia
Limited to purchase 51% interest of the Yoga Wave II, a Yoga studio located in
the city of Shenyang.  The consideration paid was RMB2, 042,040
(approximately $0.3 million).  Mege Union also loaned RMB676, 260
(approximately $0.1 million) to Yaga Wave II for business operations on May 31,
2009.  Once the transaction is completed, the Company will reclassify
the full amount to proper accounts.
 
 NOTE
9-GOODWILL
 
 On March
1, 2008, the Company’s subsidiary Mege Union entered into an acquisition
agreement with Shenyang Shengchao Management & Advisory Co., Ltd (“the
Seller”) to acquire 51% of the Seller’s interest in Yoga Wave. The consideration
paid was RMB 12,000,000 (approximately $1.7 million). Goodwill of $1.5 million
was recorded to reflect the excess of the purchase price over the fair value of
the net tangible and identifiable intangible assets of the acquired interest in
Yoga Wave.  The acquisition of a majority interest in Yoga Wave
allowed the Company to expand its business into upscale yoga studios, offering
synergistic opportunities for growth and expansion in accordance with its
business model.  As a result, the Company deemed that the inclusion of
goodwill in the premium paid for the interest was valuable consideration. The
results of operations of Yoga Wave were included in the consolidated results of
operations commencing March 1, 2008.
 
 On July
1, 2008, the Company acquired 100% interest of Harbin Tai Ai for RMB 8,000,000
(approximately $1.2 million). Goodwill of $1 million was recorded for the excess
of the purchase price over the fair value of the net tangible and identifiable
intangible assets of the acquired interest in Tai Ai. The acquisition of Harbin
Tai Ai allowed the Company to expand its business into upscale hotels, offering
further synergistic opportunities for growth and expansion in accordance with
its business model.  As a result, the Company deemed that the
inclusion of goodwill in the premium paid for the interest was valuable
consideration. The results of operations for Tai Ai are included in the
consolidated results of operations of the Company commencing July 1,
2008.
 
 The
accompanying consolidated financial statements include the allocation of the
acquisition cost to the net assets acquired based on their respective fair
values. The net assets were valued by the Company’s management giving
consideration to the valuation services provided by an independent third
party.
 
 Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible acquired. None of the goodwill recognized
is expected to be deductible for income tax purpose in China.
 
 The
following represents the allocation of the acquisition costs to the net assets
acquired based on their respective fair values:
 
 As
      of May 31,2008
              
              
              
              
              
              2009AdditionYoga
      Wave
              
              
              Harbin
      Tai Ai
              
              
              TotalCurrent
      assets
              
              $
              449,970
              
              
              $
              217,866
              
              
              $
              667,836Fixed
      assets
              
              
              1,370,824
              
              
              
              233,753
              
              
              
              1,604,577Total
      liabilities assumed
              
              
              (1,382,761
              )
              
              
              (275,394
              )
              
              
              (1,658,155
              )Net
      assets acquired
              
              
              438,033
              
              
              
              176,225
              
              
              
              614,258Noncontrolling
      interest
              
              
              (214,636
              )
              
              
              -
              
              
              
              (214,636
              )Total
      consideration paid
              
              
              1,729,107
              
              
              
              1,171,624
              
              
              
              2,900,731Goodwill
      recognized from acquisition
              
              $
              1,505,710
              
              
              $
              995,399
              
              
              $
              2,501,109Impact
      of foreign currency translation
              
              
              
              
              
              
              
              
              
              
              24,669Total
      Goodwill
              
              $
              1,505,710
              
              
              
              
              
              
              $
              2,525,778
  F-16
  The
impact of foreign currency translation was due to the fluctuation of exchange
rate between May 31, 2009 and May 31, 2008.
 
 The
following unaudited pro forma combined statements of income for the fiscal years
ended May 31, 2009 and 2008 have been prepared as if the acquisition had
occurred at the beginning of each period presented. The unaudited pro forma
combined statements are based on accounting for the business acquisition under
purchase accounting. The unaudited pro forma information may not be indicative
of the results that actually would have occurred if the merger had been in
effect from and on the dates indicated or which may be obtained in the
future:
  Unaudited
      Pro FormaCombined
      Fiscal Year EndedMay
      31,2009
              
              
              2008Revenue
              
              $
              20,942,170
              
              
              $
              14,258,711Gross
      Profit
              
              
              13,935,729
              
              
              
              9,168,328Net
      Income
              
              
              7,458,518
              
              
              
              4,910,708Noncontrolling
      Interest
              
              
              (287,865)
              
              
              
              108,481Net
      Income attributable to SOKO Fitness & Spa Group, Inc
              
              $
              7,746,383
              
              
              $
              4,802,227Net
      income per shareBasic
              
              $
              0.46
              
              
              $
              0.35Diluted
              
              $
              0.45
              
              
              $
              0.34Weighted
      average number of shares outstandingBasic
              
              
              17,000,000
              
              
              
              13,816,986Diluted
              
              
              17,297,931
              
              
              
              14,118,795
 
 NOTE
10-TAXES
 
 1)
              Corporate
      Income Tax
 
 The
Company is a Delaware corporation and conducts all of its business through Mege
Union and Queen Group. All business is conducted in China.
 
 As of May
31, 2009, Queen Group consists of seven individually-owned sole proprietorships
(one of which has two additional branches), which, under the Chinese Laws, are
generally exempted from paying corporate level income taxes unless they are
otherwise assessed by the local authority. Two of the entities under Queen Group
were assessed by the local tax authority to be subject to a fixed-rate income
tax. Under the fixed-rate income tax system, generally 10% of the annual gross
revenues from each entity are deemed Taxable Net Income (“TNI”) for income tax
purpose, without giving consideration to the costs and operating expenses. The
income tax is then levied at 27% of the TNI.
 
 Legend
Spa and Lea Spa, both wholly-owned subsidies of Harbin Mege Union, are also
subject to fixed-rate income tax system similar to that imposed on the Queen
Group entities. While Legend Spa’s TNI is taxed at 25%, Lea Spa’s TNI is
currently levied at only 20%.
 
 Yoga Wave
is subject to a 25% income tax rate on all of its net income.
 
 The
Company’s provision for income taxes for the fiscal years ended May 31, 2009 and
2008 were $42,667 and $74,381, respectively.
  F-17
  The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the fiscal years ended May 31, 2009 and 2008:
 
 For
      the Year Ended May 31,2009
              
              
              2008US
      Statutory rates
              
              
              34.0
              %
              
              
              34.0
              %Foreign
      income not recognized in USA
              
              
              -34.0
              %
              
              
              -34.0
              %China
      income tax
              
              
              25.0
              %
              
              
              33.0
              %Tax
      exemption
              
              
              -24.4
              %
              
              
              -23.5
              %Total
      provision for income tax
              
              
              0.6
              %
              
              
              1.5
              %
 
 The
Company incurred a net operating loss, including amortization of share-based
compensation, of $611,825 and $100,000 for U.S. income tax purposes for the
fiscal years ended May 31, 2009 and 2008, respectively. The net operating loss
carry forwards may be available to reduce future years’ taxable income. These
carry forwards will expire, if not utilized, beginning in 2028 through 2029.
Management believes that the realization of the benefits arising from these
losses appear to be uncertain due to Company’s limited operating history and
continuing losses for United States income tax purposes. Accordingly, the
Company has provided a 100% valuation allowance at May 31, 2009 for the
temporary difference related to loss carry-forwards. The valuation allowances
for the fiscal years ended May 31, 2009 and 2008 were $208,021 and $34,000,
respectively.
 
 2)
              Business
      Sales Tax
 
 General
business sales taxes are levied on business under both Queen Group and Mege
Union.  Except the Harbin Huang Emperor & Golden Gym Club Co.,
Ltd. which is subject to 3% of actual revenue and Yoga Wave which is subject to
5% of actual revenue, all other business is subject to either 3% or 5% on
pre-determined fixed revenue.
  3)
                Taxes payable at May 31, 2009 and
      2008 consisted of the following:
 
 As
      of May 31,2009
              
              
              2008Business
      sales tax payable
              
              $
              296,887
              
              
              $
              244,680Corporate
      income tax
              
              
              11,692
              
              
              
              68,853Other
              
              
              51,650
              
              
              
              26,022Total
      taxes payable
              
              $
              360,229
              
              
              $
              339,555
 
 NOTE
11-SHORT TERM LOANS
 
 Short
term loans include the following:
 
 Balance
      atMay 31,2009
              
              
              2008a)
      Loan payable to Shanghai Pudong Development Bank with a one year term from
      February 29, 2008 to January 29, 2009 at a fixed interest rate of 0.62%
      per month
              
              
              --
              
              
              $
              1,729,107b)
      Loan payable to Shanghai Pudong Development Bank with a one year term from
      November 21, 2008 to November 20, 2009 at a fixed interest rate of 0.4995%
      per month
              
              $
              1,025,171
              
              
              
              --c)
      Loan payable to an unrelated party with a one year term from October 23,
      2007 to October 28, 2008 at a fixed interest payment of RMB4, 000 per
      quarter. This loan was extended to December 7, 2008 at a fixed interest
      rate of 2% per month
              
              
              --
              
              
              
              288,184d)
      Loan payable to a related party with a one year term from April 1, 2008 to
      March 31, 2009 free of interest
              
              
              --
              
              
              
              529,953e)
      Loan payable to Shanghai Pudong Development Bank with a term from January
      5, 2009 to November 20, 2009 at a fixed interest rate of 0.4995% per
      month
              
              
              1,171,624
              
              
              
              --Total
              
              $
              2,196,795
              
              
              $
              2,547,244
 
 F-18
 
 Interest
expense paid for the above short term loans totaled $66,121 and $49,042 for the
fiscal years ended May 31, 2009 and 2008, respectively. The loans from Shanghai
Pudong Development Bank are secured by the building owned by Queen
Group.
 
 NOTE
12-DEFERRED REVENUE
 
 Deferred
revenue represents cash received from members, but not yet earned. The summary
set forth below of the activity and balances in deferred revenue at May 31, 2009
and 2008 respectively. Cash additions include all cash received for membership
fees and advance payments for services. Revenue recognized includes all revenue
earned during the periods from membership services and other
services.
 
 A
reconciliation of deferred revenue as of May 31, 2009 is as
follows:
 
 As
      of May 31,2008
              
              
              
              
              
              
              
              
              2009Balance
              
              
              Cash
      Additions
              
              
              Revenue
      Recognized
              
              
              BalanceMembership
      fees & advance payment collected
              
              $
              514,965
              
              
              $
              20,252,609
              
              
              $
              (18,885,155
              )
              
              $
              1,882,419Receipts
      collected & earned without deferral during period
              
              
              
              
              
              
              683,953
              
              
              
              (683,953
              )514,965
              
              
              
              20,936,562
              
              
              
              (19,569,108
              )
              
              
              1,882,419Impact
      of foreign currency translation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27,336Total
              
              
              $
              1,909,755
 
 NOTE
13-SEGMENT REPORTING
 
 The Group
has a single operating segment in accordance with the provisions of ASC 280,
“Disclosures about Segments of an Enterprise and Related Information.” Although
the Company provides and markets various products and services, the Company’s
chief operating decision maker reviews and evaluates one set of combined
financial information deciding how to allocate resources and in assessing
performance.
 
 For the
fiscal years ended May 31, 2009 and 2008, the Company’s sales revenue from
various products and services are as follows:
 
 Years
      ended May 31,2009
              
              
              2008Professional
      services
              
              $
              11,284,644
              
              
              $
              10,296,518Sales
      of products
              
              
              3,624,257
              
              
              
              1,229,363Membership
      fees
              
              
              2,977,462
              
              
              
              1,498,503Tuition
              
              
              1,682,744
              
              
              
              938,746Total
              
              $
              19,569,108
              
              
              $
              13,963,130
  F-19
  NOTE
14-STOCK OPTIONS
 
 On March
2, 2009, the Board of Directors of the Company authorized the issuance of stock
options for 60,000 shares of the Company’s common stock to its three independent
directors (each option was for 20,000 shares of the Company’s common stock). The
options granted to two of the directors vest over a three year period, with 20%
vesting on the grant date and 40% vesting on the first and second anniversaries
of the grant date. These options are exercisable for three years from the date
of grant, provided that the directors remain associated with the Company during
the period. The option granted to the third director was fully vested on the
grant date and is exercisable for three years from the date of grant, regardless
of continued association with the Company. The fair value of stock options
granted was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: Expected life 3 years,
expected volatility 100%, dividend yield 0%, risk free interest rate 1.28% and
the exercise price of $1.47. The fair value of the 60,000 options was $53,945 at
the grant date.
  In July
2008, the Board of Directors of the Company authorized the issuance of 50,000
shares of stock options to one of its independent directors. The options vest
over a three year period, with one-third vesting on each of the grant date, and
the first and second anniversaries of the grant date. The option is exercisable
for five years from the date of grant. The fair value of stock options granted
was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions: Expected life 5 years, expected volatility 100%,
dividend yield 0%, risk free interest rate 3.91% and the exercise price of
$1.47. The fair value of the 50,000 options was $55,953 at the grant
date.
 
 The Group
determined its expected volatility and dividend yield based on the historical
changes in stock price and dividend payments. The risk –free interest rate for
the expected term of the options is based on the U.S. Treasury yield curve in
effect at the time of grant.
 
 Following
is a summary of the stock option activity:
 
 Options
      Outstanding
              
              
              Weighted
      Average Exercise Price
              
              
              Aggregate
      Intrinsic ValueOutstanding
      as of May 31, 2008
              
              
              -
              
              
              
              -
              
              
              
              -Granted
              
              
              110,000
              
              
              $
              1.47
              
              
              $
              -Forfeited
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding
      as of May 31, 2009
              
              
              110,000
              
              
              $
              1.47
              
              
              $
              -
 
 Stock
compensation expense recognized for the period is based on awards expected to
vest, and there were no estimated forfeitures as the Company has a short history
of issuing options. Stock compensation expense amounted to $48,621 for the
year ended May 31, 2009. All the options granted have no intrinsic value at May
31, 2009. As of May 31, 2009, the Company has 44,667 outstanding vested stock
options, with an exercise price above market, are excluded from the Company’s
diluted computation.The unvested
stock options are expected to be expensed for an aggregate amount of $61,277
over a weighted average period of 2.29 years.
  F-20
  NOTE
15- STOCKHOLDERS’ EQUITY
 
 A.
Issuance of Common Stock
 
 On April
11, 2008, in connection with the Share Exchange discussed in detail under NOTE
1, the Company issued an aggregate of 13,300,000 shares of its common stock to
the Wealthlink Shareholders.  In consideration of services provided to
the Company in association with the consummation of the Share Exchange, an
aggregate of 765,000 shares were issued to certain advisors with an aggregate
fair value of $481,950, which was recognized as expenses in the Company’s
consolidated financial statement. Concurrently with the Share Exchange, the
Company provided $400,000 to Mr. Tong Liu to purchase 1,000,000 shares of common
stock from Idris Husain, then director of the Company, and an aggregate of
1,575,000 shares of common stock from certain other original shareholders of the
Company with the understanding that Mr. Tong Liu would immediately return these
2,575,000 shares to the Company  for cancellation. Following the
purchase of these 2,575,000 shares by Mr. Tong Liu on the Closing Date, Mr. Tong
Liu immediately returned the 2,575,000 shares as agreed to the Company for
cancellation.  Additionally, on April 11, 2008, SOKO sold in the aggregate,
2,000,000 shares of its common stock to certain accredited investors, at a
purchase price of $1.00 per share. The Company received net proceeds of
$1,718,500 in connection with this Financing after the reduction of $ 84,000 in
legal expenses, $170,000 paid to E-Tech Securities, Inc. as a cash fee ($30,000
as a cash retainer fee and $140,000 success fee) for structuring the Financing,
and $27,500 paid to the escrow agent and transfer agent in connection with the
Financing. There were 17,000,000 shares of common stock issued and outstanding
on May 31, 2009 and 2008. In consideration for acting as placement agent, the
Company also issued to Luck Eagle Limited, an affiliate of E-Tech Securities,
510,000 shares of common stock, with a fair value of $321,300.
  In
consideration for structuring the Share Exchange with Wealthlink, SOKO agreed to
compensate E-Tech International, Inc. with (i) a retainer of $20,000 and (ii)
shares of common stock of the Company equal to two percent (2%) of total number
of shares outstanding after the Share Exchange with Wealthlink and the placement
of the Financing (total of 340,000 shares). having an aggregate fair value at
the time of issuance (applying a per share fair value of $0.63 computed for the
shares issued in the Financing to the Purchasers described below) of $214,200.
Further, in consideration of services provided to the Company in association
with the consummation of the Share Exchange, an aggregate of 425,000 shares,
having an aggregate fair value at the time of issuance (applying a per share
fair value of $0.63 computed for the shares issued in the Financing to the
Purchasers described below) of $267,750 were issued to two other advisors
(85,000 shares to Sichenzia Ross Friedman Ference LLP and 340,000 shares to
Fortune Badge Limited) in lieu of cash compensation, totaling the number of
shares issued to the advisors in connection with the Share Exchange to 765,000
shares of common stock of the Company, having an aggregate fair value at the
time of issuance (applying a per share fair value of $0.63 computed for the
shares issued in the Financing to the Purchasers described below) of
$481,950.
 
 In
consideration for acting as placement agent for the Financing, SOKO agreed to
compensate (a) E-Tech Securities Inc. with (i) a retainer of $30,000, (ii) a
cash placement fee equal to seven percent (7%) of the proceeds of the Financing
described below ($140,000) and (iii) warrants to purchase an amount of
securities equal to eight percent (8%) of the total shares issued to the
Purchasers (160,000 shares), having an aggregate fair value at the time of
issuance (applying a per warrant share fair value of $0.37 computed for the
warrant shares issued in the Financing to the Purchasers) of
$59,200  and (b) Luck Eagle Limited shares of common stock the Company
equal to three percent (3%) of total number of shares outstanding after the
Share Exchange with Wealthlink and the placement of the Financing (510,000
shares), having an aggregate fair value at the time of issuance (applying a per
share the fair value of $0.63 computed for the shares issued in the Financing to
the Purchasers) of $321,300. The warrants issued to E-Tech Securities Inc. have
an exercise price of $1.25 and are exercisable at any time through the third
anniversary of the Closing Date.
  B.
Warrants
 
 With the
warrants attached to the stocks sold in the Financing, the investors are
entitled to purchase an aggregate of 2,000,000 shares of common stock at an
exercise price of $1.25 per share. All these warrants are exercisable for three
years from the effective date of registration statement. Moreover, the placement
agent is entitled to purchase an aggregate of 160,000 shares of common stock at
an exercise price of $1.25 per share. All these warrants are exercisable for
three years from the issuance date April 11, 2008. In accordance with EITF
00-19, the warrants are classified in the equity section as an offset to
additional paid-in capital.
  F-21
  Following
is a summary of the status of warrants outstanding as of May 31,
2009:
 
 Warrants
      Outstanding
              
              
              Weighted
      Average Exercise Price
              
              
              Average
      Remaining LifeOutstanding
      as of May 31, 2008
              
              
              2,160,000
              
              
              $
              1.25
              
              
              $
              2.92Granted
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Outstanding
      as of May 31, 2009
              
              
              2,160,000
              
              
              $
              1.25
              
              
              $
              1.92
 
 By using
the Black-Scholes model to calculate the fair market value of the warrants
issued to the Purchasers in the Financing, SOKO computed that the effective fair
market value of each of the 2,000,000 share issued to the investors at the time
of issuance was $0.63 and that the effective fair market value of each warrant
share issued to the investors at the time of issuance was $0.37.
  F-22
  NOTE
16-RELATED TRANSACTIONS
 
 1) The
Group rents the premises for certain locations from Mr. Tong Liu, the Company’s
Chairman and CEO. Mr. Liu has leased Mege Union’s office, as well as two stores
to the Company pursuant to the terms of binding written lease agreements
containing terms no less favorable to the Company than the Company could have
negotiated in an arm’s length transaction with a motivated landlord, including
substantially the following terms:
 
 i.
              Harbin
      Daoli Queen Demonstration Beauty Parlor: 5-year lease from January 1, 2007
      through December 31, 2011 for $47,300 per
year;
 
 ii.
              Harbin
      Queen Beauty Demonstration Center: 5-year lease from January 1, 2007
      through December 31, 2011 for $20,300 per
year;
 
 iii.
              Mege
      Union office:  10-year lease from January 1, 2009 through
      December 31, 2018 for $73,212 per
year.
  NOTE
17-EARNINGS PER SHARE
 
 EPS for
the periods ended May 31, 2009 and 2008 is determined by dividing net income
attributable to SOKO Fitness & Spa Group, Inc. for the periods by the
weighted average number of both basic and diluted shares of common stock and
common stock equivalents outstanding. The following is an analysis of the
differences between basic and diluted EPS in accordance with ASC 260, “Earnings
Per Share.”
  The
following demonstrates the calculation for EPS for the fiscal years ended May
31, 2009 and 2008:
 
 Year
      ended May 31,2009
              
              
              2008Basic
      and diluted earnings per shareNet
      income attributable to SOKO Fitness & Spa Group, Inc.
              
              $
              7,030,500
              
              
              $
              4,702,980Weighted
      average common share outstandingBasic
              
              
              17,000,000
              
              
              
              13,816,986Diluted
              
              
              17,297,931
              
              
              
              14,118,795Earnings
      per shareBasic
              
              $
              0.41
              
              
              $
              0.34Diluted
              
              $
              0.41
              
              
              $
              0.33
 
 The Group
had outstanding warrants of 2,160,000 on each of May 31, 2009 and 2008. As of
May 31, 2008, the warrants were anti-dilutive because the exercise price was
higher than market price. The warrants are included in diluted weighted average
shares calculation at May 31, 2009. The Group had outstanding options of 110,000
and 0, on May 31, 2009 and 2008, respectively. As of May 31, 2009 and 2008, the
options are anti-dilutive because the exercise prices are higher than market
price.
  F-23
  NOTE
18-COMMITMENTS AND CONTINGENCIES
 
 1) Commitments
 
 i.
              The
      Group leases offices and fitness facilities under non-cancellable
      operating leases. The Group recognizes rent expense on a straight-line
      basis over the term of the lease in accordance to ASC 840 “Accounting for
      Leases.” The Group has entered into eleven tenancy agreements for the
      lease of the premises.
 
 The
Group’s commitments for minimum rental payments under these lease agreements are
as follows:
 
 As
      of May 31, 20092010
              
              $776,0792011
              
              851,5632012
              
              830,6322013
              
              793,7872014
              
              685,9862015
              
              656,8782016
              
              674,7352017
              
              706,1082018
              
              512,3132019
              
              263,310Total
              
              $6,751,392
 
 Rent
expense for the years ended May 31, 2009 and 2008 was $687,386 and $289,040,
respectively.
 
 ii.
              According
      to the warrant agreement to investors, the warrants contain a cashless
      exercise provision, which entitle the holders to receive a certificate for
      the number of warrant shares if any time after 180 days from the Closing
      there is no effective Registration Statement registering pursuant to the
      Registration Rights Agreement entered into by the Company and the Holders,
      or no current prospectus available for, the resale of the Warrant Shares
      by the Holders.
  2) Contingencies
 
 The
Registration Rights Agreement between the Company and security purchaser
provides for liquidated damages to the extent that the Company does not attain
certain milestones within specified time frames. Specifically, if the Company
had failed to file a registration statement within 60 calendar days after the
Closing (a milestone which was met by the Company), or in the event that it
fails to file a pre-effective amendment and otherwise respond in writing to
comments made by the SEC in respect of such Registration Statement within 10
Trading Days after the receipt of comments by or notice from the SEC that such
amendment is required in order for such Registration Statement to be declared
effective, or registration statement is not declared effective within 180
calendar days after the Closing, or in the event that such Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities included in such Registration Statement, or the Holders
are otherwise not permitted to utilize the prospectus therein to resell such
Registrable Securities, for more than 10 consecutive calendar days or more than
an aggregate of 30 calendar days during any 12-month period (which need not be
consecutive calendar days), liquidated damages amounting to approximately
$20,000 per month would have been payable to purchasers, and such liquidated
damages are payable for each 30 calendar day period on a daily pro-rata for any
portion of a month prior to cure of an event. The maximum amount of liquidation
damage payable to security purchaser is $200,000. As first round comment letter
dated July 8, 2008, which was responded to SEC by September 5, 2008, liquidated
damages for the delay amounting to approximately $28,810 has been accrued in the
first quarter of fiscal year 2009. At that time, the estimate effective date of
the registration statement was November 20, 2008; we accrued registration
payment approximately $26,800 for late effectiveness. In second quarter, the
Company’s estimated response to second round comment  dated October
11, 2008 was around January 15, 2009, additional $56,950 liquidation damage had
been accrued for late response, also the Company’s estimated effective date of
the registration statement was to be February 20, 2009; the estimated penalty
approximately $40,200 for additional delay had been accrued. In the third
quarter, the response to second round comment was sent out on February, 17,
2009, one month later than the previous estimation and the estimated effective
date will be April 30, 2009. The liquidation damage and registration payment
liability reaches the maximum amount $200,000 as of May 31, 2009.
  F-24
  3) Guarantee
 
 Mege
Union agrees to, whenever necessary, act as the guarantor for Queen Group, its
variable interest entities, in all contracts, agreements or transactions in
connection with Queen Group’s operation between Queen Group and any third party,
to provide full guarantee for the performance of such contracts, agreements or
transactions by Queen Group. In return, Queen Group agrees to pledge all of its
assets, including accounts receivable, to Mege Union. As of May 31, 2009, Mege
Union has not provided any guarantee to any third party on behalf of Queen
Group. Therefore, the Company is currently not exposed to any guarantor’s
obligations under this guarantee arrangement.
 
 NOTE
19-RESTATEMENT
 
 The
Company has restated the consolidated financial statements for the fiscal year
ended May 31, 2009 for the following reasons:
 
 The
retained earnings as of May 31, 2009 were restated due to a charge of $472,950
into expenses as a result of restatement for the fiscal year ended May 31,
2008.  This amount was previously recorded as an offset to the
financing proceeds. Thus, the revision also affected the balance of additional
paid-in capital account for the same amount.
 
 We
reconciled net income instead of net income attributable to SOKO Fitness &
Spa Group, Inc to net cash flows from operating activities upon further
review.
 
 The
impact of this restatement on the financial statements as originally reported as
of May 31, 2009 is summarized below:
  May
      31, 2009As
      Reported
                
                
                As
      RestatedAdditional
      paid-in-capital
                
                $
                2,139,786
                
                
                $
                2,346,397Additional
      paid in-capital-warrants
                
                
                372,914
                
                
                
                639,253Retained
      earnings
                
                
                19,688,064
                
                
                
                19,215,114
  For
      the year Ended
                May
      31, 2009As
      Reported
              
              
              As
      RestatedCash
      Flows From Operating Activities:Net
      income attributable to SOKO Fitness & Spa Group, Inc.
              
              $
              7,030,500
              
              
              $
              -Net
      income
              
              
              -
              
              
              
              6,742,636Adjustments
      to reconcile net income to net cashMinority
      interest
              
              
              287,864
              
              
              
              -
 
 The
Company also restated the consolidated financial statements for the fiscal year
ended May 31, 2008, previously amended and filed on July 30, 2009, for the
following reasons:
 
 (a)
              The
      1,275,000 shares issued to advisors in connection with the Share Exchange
      and Financing was previously treated as recapitalization.  Upon
      further review, the Company determined that only 765,000 shares of the
      1,275,000 shares issued to advisors were issued in connection with the
      Share Exchange, the remaining 510,000 shares issued to advisors were
      issued in connection with the Financing.  Thus, the Company
      accounted for the value of the shares issued for the services provided by
      advisors in connection with the Share Exchange in the amount of $481,950
      as expenses for the fiscal year ended May 31,
  2008.
  F-25
  (b)
              A
      300,000 payment made to Idris Husain for consulting fees, which was a part
      of the $650,000 payment made out of the financing proceeds from the
      Company’s April 2008 Financing, was previously treated as a reduction of
      proceeds.  Upon further reviews of the various agreements, the
      Company has determined that this payment of $300,000 should be recognized
      as expenses over the service period of six months starting April 2008,
      rather than a reduction of the financing proceeds.  This change
      has an effect on previously reported assets, retained earnings and net
      income for the fiscal year ended May 31, 2008.  Thus, the
      Company accounted $100,000 as consulting expenses and $200,000 as prepaid
      expenses for the fiscal year ended May 31,
2008.
 
 (c)
              The
      Company reclassified $66,000 payment made to its attorney for their
      services associated with the Share Exchange transaction to
      expense.  The payment was previously offset against the
      financing proceeds.
 
 The
aggregate value of the above adjustments amounted to $647,950.  After
deducting $50,000 deposits paid in advance for consulting fees to Idris Husain
and deducting a $25,000 deposit paid in advance for other expenses related to
the Financing, which had previously been recognized as expenses, the net effect
of the above adjustments on the Company’s net income for the year ended May 31,
2008 amounted to $572,950.
 
 During
the course of its review, the Company also determined that a revision was
required to the description of the share exchange transaction, related to the
buyback of 2,575,000 shares by Mr. Liu on behalf of the Company.  This
revision affected the calculation of the basic and diluted weighted average
common shares outstanding, as well as earnings per share, for the fiscal year
ended May 31, 2008.
 
 The
impact of this restatement on the financial statements as previously reported is
summarized below:
  May
      31, 2008As
                  Previously
      Reported
                
                
                As
      RestatedCurrent
      assets
                
                $
                5,153,945
                
                
                $
                5,353,945Total
      Assets
                
                
                21,315,772
                
                
                
                21,515,772Additional
      paid-in capital
                
                
                1,875,439
                
                
                
                2,297,776Additional
      paid-in-capital -Warrants
                
                
                288,640
                
                
                
                639,253Retained
      earnings
                
                
                12,757,564
                
                
                
                12,184,614Total
      Liabilities and Stockholders’ Equity
                
                
                21,315,772
                
                
                
                21,515,772Selling,
      General and Administrative expenses
                
                
                3,436,547
                
                
                
                4,009,497Net
      income attributable to SOKO Fitness & Spa Group, Inc.
                
                $
                5,275,930
                
                
                $
                4,702,980Net
      income per common shareBasic
                
                $
                0.45
                
                
                $
                0.34Diluted
                
                $
                0.44
                
                
                $
                0.33Weighted
      average common share outstandingBasic
                
                
                11,601,781
                
                
                
                13,816,986Diluted
                
                
                11,903,589
                
                
                
                14,118,795
  For
      the year ended
                  May
      31, 2008As
      Previously
                  Reported
                
                
                As
      RestatedCash
      Flows From Operating Activities:Net
      income attributable to SOKO Fitness & Spa Group, Inc.
                
                $
                5,275,930
                
                
                $
                --Net
      Income
                
                
                
                
                
                
                4,811,461Adjustments
      to reconcile net income to net cash provided by operating
      activities:Stock compensation for consulting services
                
                
                -
                
                
                
                481,950Minority interest
                
                
                108,481
                
                
                
                -Changes
      in operating assets and liabilities:Prepaid
      expense
                
                
                (54,681
                )
                
                
                (254,681
                )Cash
      Flows From Financing Activities:Proceeds
      from issuance of common stock
                
                
                1,027,500
                
                
                
                1,718,500Payment
      to buy back common stock
                
                
                -
                
                
                
                (400,000)
  F-26
  NOTE
20-QUARTERLY DATA (UNAUDITED)
 
 The
tables below list the quarterly financial information for the year ended May 31,
2009.
  Quarters
      EndedAugust
      31, 2008
              
              
              November
      30, 2008
              
              
              February
      28, 2009
              
              
              May
      31, 2009As
      reported
              
              
              As
      restated
              
              
              As
      reported
              
              
              As
      restated
              
              
              As
      reported
              
              
              As
      restated
              
              
              As
      reported
              
              
              As
      restatedBalance
      sheets:Total
      assets
              
              $
              23,897,557
              
              
              $
              23,897,557
              
              
              $
              24,859,745
              
              
              $
              24,859,745
              
              
              $
              27,261,781
              
              
              $
              27,261,781
              
              
              $
              29,313,035
              
              
              $
              29,313,035Additional
      paid- in capital
              
              
              903,332
              
              
              
              2,297,776
              
              
              
              903,332
              
              
              
              2,297,776
              
              
              
              1,894,090
              
              
              
              2,297,776
              
              
              
              2,139,786
              
              
              
              2,346,397Additional
      paid-in-capital - warrants
              
              
              1,279,398
              
              
              
              657,904
              
              
              
              1,279,398
              
              
              
              657,904
              
              
              
              288,640
              
              
              
              657,904
              
              
              
              372,914
              
              
              
              639,253Retained
      earnings
              
              
              14,400,905
              
              
              
              13,627,955
              
              
              
              16,077,310
              
              
              
              15,304,360
              
              
              
              17,932,785
              
              
              
              17,159,835
              
              
              
              19,688,064
              
              
              
              19,215,114Income
      statements:Revenues
              
              
              4,276,867
              
              
              
              4,276,867
              
              
              
              4,608,291
              
              
              
              4,608,291
              
              
              
              5,110,861
              
              
              
              5,110,861
              
              
              
              5,573,089
              
              
              
              5,573,089Gross
      profit
              
              
              2,851,711
              
              
              
              2,851,711
              
              
              
              3,018,010
              
              
              
              3,018,010
              
              
              
              3,303,777
              
              
              
              3,303,777
              
              
              
              3,803,704
              
              
              
              3,803,704Selling,
      General and Administrative expenses
              
              
              1,142,184
              
              
              
              1,342,184
              
              
              
              1,234,151
              
              
              
              1,234,151
              
              
              
              1,438,622
              
              
              
              1,438,622
              
              
              
              1,887,102
              
              
              
              1,887,102Net
      income attributable to SOKO Fitness & Spa Group, Inc
              
              $
              1,643,341
              
              
              $
              1,443,341
              
              
              $
              1,676,405
              
              
              $
              1,676,405
              
              
              $
              1,855,475
              
              
              $
              1,855,475
              
              
              $
              2,055,279
              
              
              $
              2,055,279Basic
      net income per share
              
              
              0.10
              
              
              
              0.08
              
              
              
              0.10
              
              
              
              0.10
              
              
              
              0.11
              
              
              
              0.11
              
              
              
              0.12
              
              
              
              0.12Diluted
      net income per share
              
              
              0.10
              
              
              
              0.08
              
              
              
              0.10
              
              
              
              0.10
              
              
              
              0.11
              
              
              
              0.11
              
              
              
              0.12
              
              
              
              0.12
 
 
 
 F-27
 
 SIGNATURES
 
 Pursuant
to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 3rd day of
February, 2010.
 
 SOKO
      Fitness & Spa Group, Inc./s/ Tong
      LiuTong
      LiuChief
      Executive Officer(Principal
      Executive Officer)
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
              
              Title
              
              Date/s/
      Tong Liu
              
              Chief
      Executive Officer, Chairman of the Board
              
              February
      3, 2010Tong
      Liu
              
              (Principal
      Executive Officer)/s/
      Xia Yu
              
              Chief
      Financial Officer
              
              February
      3, 2010Xia
      Yu
              
              (Principal
      Financial and Accounting Officer)*
              
              Director
              
              February
      3, 2010Yang
      Chen*
              
              Director
              
              February
      3, 2010Su
      Zhang*
              
              Director
              
              February
      3, 2010Gideon
      Efim Kory* /s/
      Tong LiuTong
      Liu
                Attorney-in-Fact
 
 
 
  INDEX
TO EXHIBITS
 
 Exhibit
      Number
              
              Description
      of Exhibit3(i).1
              
              Certificate
      of Incorporation of American Business Holdings Inc. (incorporated by
      reference to Exhibit 3.1 of SOKO’s Registration Statement on Form SB-2,
      filed with the SEC on March 15, 2006 (Commission File No.
      333-132429))3(i).2
              
              Certificate
      of Ownership and Merger merging SOKO Fitness & Spa Group, Inc. into
      American Business Holdings Inc. (incorporated by reference to Exhibit 3.1
      of SOKO’s Current Report on Form 8-K, filed with the SEC on June 6, 2008
      (Commission File No. 333-132429))3(ii).1
              
              Amended
      and Restated Bylaws of SOKO Fitness & Spa Group, Inc. (incorporated by
      reference to Exhibit 3(ii) of SOKO’s Annual Report on Form 10-K for the
      year ended May 31, 2008, filed with the SEC on August 29, 2008 (Commission
      File No. 333-132429))4.1
              
              Specimen
      Stock Certificate (incorporated by reference to Exhibit 4.1 of SOKO’s
      Annual Report on Form 10-K for the year ended May 31, 2008, filed with the
      SEC on August 29, 2008 (Commission File No.
333-132429))10.1
              
              Form
      of Share Exchange Agreement dated April 11, 2008 by and among American
      Business Holdings, Inc., Wealthlink Co., Ltd. and each of the shareholders
      of Wealthlink Co., Ltd. (incorporated by reference to Exhibit 10.1 of
      SOKO’s Current Report on Form 8-K, filed with the SEC on April 17, 2008
      (Commission File No. 333-132429))10.2
              
              Form
      of Securities Purchase Agreement dated April 11, 2008 among American
      Business Holdings, Inc., Tong Liu, and the persons listed on the signature
      pages thereto. (incorporated by reference to Exhibit 10.2 of SOKO’s
      Current Report on Form 8-K, filed with the SEC on April 17, 2008
      (Commission File No. 333-132429))10.3
              
              Form
      of Registration Rights Agreement dated April 11, 2008 between American
      Business Holdings, Inc. and the several purchasers signatory thereto.
      (incorporated by reference to Exhibit 10.3 of SOKO’s Current Report on
      Form 8-K, filed with the SEC on April 17, 2008 (Commission File No.
      333-132429))10.4
              
              Form
      of Lock-up Agreement dated April 11, 2008 between American Business
      Holdings, Inc. and the stockholder signatory thereto. (incorporated by
      reference to Exhibit 10.4 of SOKO’s Current Report on Form 8-K, filed with
      the SEC on April 17, 2008 (Commission File No.
  333-132429))10.5
              
              Form
      of Warrant issued by American Business Holdings, Inc. (incorporated by
      reference to Exhibit 10.5 of SOKO’s Current Report on Form 8-K, filed with
      the SEC on April 17, 2008 (Commission File No.
  333-132429))10.6
              
              Form
      of Escrow Agreement dated April 11, 2008 between American Business
      Holdings, Inc., certain officers of the company, and Crone Rozynko, LLP.
      (incorporated by reference to Exhibit 10.6 of SOKO’s Current Report on
      Form 8-K, filed with the SEC on April 17, 2008 (Commission File No.
      333-132429))10.7
              
              Consulting
      Agreement dated April 11, 2008 between Syed Idris Husain and American
      Business Holdings, Inc. (incorporated by reference to Exhibit 10.7 of
      SOKO’s Current Report on Form 8-K, filed with the SEC on April 17, 2008
      (Commission File No. 333-132429))
 
 
 
 
 10.8
              
              Stock
      Purchase Agreement  dated April 11, 2008 between American
      Business Holdings, Inc. and each of Syed Irfan Husain, Syed Idris Husain
      and Verifica International, Ltd. (incorporated by reference to Exhibit
      10.8 of SOKO’s Current Report on Form 8-K, filed with the SEC on April 17,
      2008 (Commission File No. 333-132429))10.9
              
              Form
      of Consulting Services Agreement between Mege Union and each of the
      Queen Group entities (incorporated by reference to Exhibit 10.9 of SOKO’s
      Amendment No. 1 Registration Statement on Form S-1/A (Commission File No.
      333-151563), filed with the SEC on September 5, 2008)10.10
              
              Form
      of Operating Agreement between Mege Union and each of the Queen Group
      entities (incorporated by reference to Exhibit 10.10 of SOKO’s Amendment
      No. 1 Registration Statement on Form S-1/A (Commission File No.
      333-151563), filed with the SEC on September 5, 2008)10.11
              
              Form
      of Option Agreement among Mege Union, each of the Queen Group
      entities and the shareholders of such Queen Group entity (incorporated by
      reference to Exhibit 10.11 of SOKO’s Amendment No. 1 Registration
      Statement on Form S-1/A (Commission File No. 333-151563), filed with the
      SEC on September 5, 2008)10.12
              
              Form
      of Equity Pledge Agreement among Mege Union, each of the Queen Group
      entities and the shareholders of such Queen Group entity (incorporated by
      reference to Exhibit 10.12 of SOKO’s Amendment No. 1 Registration
      Statement on Form S-1/A (Commission File No. 333-151563), filed with the
      SEC on September 5, 2008)10.13
              
              Form
      of Proxy Agreement between Mege Union and the shareholders of each of
      the Queen Group entities (incorporated by reference to Exhibit 10.13 of
      SOKO’s Amendment No. 1 Registration Statement on Form S-1/A (Commission
      File No. 333-151563), filed with the SEC on September 5,
    2008)10.14
              
              Form
      of Warrant issued by American Business Holdings, Inc. to E-Tech Securities
      Inc. (incorporated by reference to Exhibit 10.14 of SOKO’s Amendment No. 2
      Registration Statement on Form S-1/A (Commission File No. 333-151563),
      filed with the SEC on February 17, 2009)10.15
              
              Stock
      Option Agreement, dated July 8, 2008, between the Company and Gideon Kory
      (incorporated by reference to Exhibit 10.15 of SOKO’s Amendment No. 2
      Registration Statement on Form S-1/A (Commission File No. 333-151563),
      filed with the SEC on February 17, 2009)10.16
              
              English
      Translation of Placement Agent Engagement Letter, dated February 7, 2007,
      between Etech Securities Inc. and Harbin Mege Union (HK) International
      Group (incorporated by reference to Exhibit 10.16 of SOKO’s Amendment No.
      2 Registration Statement on Form S-1/A (Commission File No. 333-151563),
      filed with the SEC on February 17, 2009)10.17
              
              English
      Translation of Financial Consulting Agreement, dated February 7, 2007,
      between Etech International, Inc. and Mege Union (incorporated by
      reference to Exhibit 10.17 of SOKO’s Amendment No. 2 Registration
      Statement on Form S-1/A (Commission File No. 333-151563), filed with the
      SEC on February 17, 2009)31.1
              
              Certification
      of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as amended*31.2
              
              Certification
      of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as amended*32.1
              
              Certification
      of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*32.2
              
              Certification
      of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002** Filed herewith.