The polarised political environment in Hong Kong has led to a ‘colour classification’ in businesses according to their political views, encouraging customers to support businesses that share similar ideologies with themselves. Yet, controversies may arise when the business’ decisions do not meet its supporters’ expectations.
FactWire received nearly 10 complaints in the past half year concerning the Lung Mun Cafe chain, one of the earliest businesses branded ‘yellow’ (pro-democracy) since the Anti-Extradition Bill movement in 2019. Those who raised complaints contended that the large amount of income and ‘donations’ given to Lung Mun were not properly handled and were not spent according to its original promise of supporting youngsters in Hong Kong.
FactWire was called on to investigate the case and to make enquiries into whether Cheung Chun-kit, representative of Lung Mun, was accountable for the financial problems.
FactWire believes that matters affecting public interest should remain transparent and stay monitored, thus, decided to publish the following results of the investigation. Since the ‘political colouring of businesses’ is still a developing concept in society, there is no clear definition of what is right or wrong. It is hence up to the readers to draw their own conclusions based on the information available.
Concerning the doubts that have arisen during the investigation, FactWire has attempted to enquire Cheung multiple times, via various means including phone calls, WhatsApp, Facebook, email and by meeting him face-to-face, yet he has refused to neither be interviewed nor to provide FactWire with any additional details.
At the end of 2019, Cheung Chun-kit established the HKers Cafe Resource Sharing Centre (henceforth referred to as ‘the Centre’) to support youngsters in Hong Kong. In January last year, Lung Mun Cafe’s Facebook page was renamed to be combined with the Centre’s name.
In February 2020, HKers Cafe Resource Sharing Centre Ltd. was officially set up as a private company limited by guarantee. This was to ensure “a clear financial account” according to a Facebook post made by Lung Mun Cafe.
Cheung had earlier provided a financial statement of the Centre to be published by Stand News in June last year. The statement included the accounts of 16 project items as of May 2020, involving $24.83 million in expense and $23.72 million in revenue (stated as “income” in the statement), resulting in a loss of nearly $1.11 million.
FactWire evaluated the financial statement by comparing them with information previously published by Cheung and contacting the person-in-charge of individual items for further details.
Complaint 1: Loss from sale of anti-epidemic products
FactWire received multiple complaints concerning the Centre’s financial accounts. Among all the items listed in the statement, “anti-epidemic products” incurred the largest deficit of $4.6 million – despite the large demand for these products when the pandemic first began last year during the Chinese New Year – making it one of the most questionable items.
According to the statement, selling anti-epidemic products brought in a revenue of around $2.73 million as of the end of May. Its cost, however, was as substantial as $7.33 million, resulting in a deficit of $4.6 million. The cost in February alone was nearly $6 million, labelled as “project cost” without any further detail.
FactWire attempted to break down the revenue by month and project. According to two Facebook posts by Lung Mun Cafe on January 30, 2020, a total of 15,000 KF94 Korean face masks were put on sale, priced at $20 each. Assuming all the masks sold out, they would have brought in a revenue of $300,000.
In addition, Lung Mun announced on February 14 that it had sourced 1,000 boxes of Japanese masks. Deducting 200 boxes to be donated to the needy, it said the remaining 800 boxes were for sale at $300 each. This brought a revenue of $240,000, as confirmed by Lung Mun in another Facebook post on February 15.
However, from the financial statement, the total “income” (revenue) for all anti-epidemic products in January and February was just $33,000. The amount is far less than what was calculated from the sale of masks, let alone the sale of other anti-epidemic products in the same period. They included homemade hand sanitizers sold at $15 per 30ml, sanitizer-refillers at $20 per 100ml, Thai hand sanitizers at $100 per 500ml, Australian hand sanitizers at $60 per 120ml, and air sterilization devices at $68 each. The revenue made by selling all the products would have totalled least $1.14 million.
Cheung once explained that the deficit was caused by the free delivery of these products. He said that not less than a million face masks had been delivered free-of-charge.
Complaint 2: Unclear investment with an anonymous supplier
An Apple Daily report on March 4 said that Cheung had invested $3 million in a hand-sanitizer production line. Complaints were then submitted suspecting that the amount was inflated by Cheung.
Lung Mun clarified on the same day that the $3 million Cheung invested was in all anti-epidemic products, and not the production line alone. It added that there was an additional $2 million from an anonymous “supplier with conscience”, amounting to a total investment of $5 million in anti-epidemic products.
However, it remains unclear whether the investment was made in the name of HKers Cafe Resource Sharing Centre, or under Cheung’s name along with the “supplier with conscience”, because the amount was not specified in the Centre’s statement.
Complaint 3: Profit from the Centre spent not on supporting youngsters
As one of the earliest businesses branded ‘yellow’, Lung Mun had been receiving public donations and volunteer assistance for the past year. Two of the persons-in-charge told FactWire that Cheung, at the end of last year, mentioned setting up a fund to support youngsters in Hong Kong. His target was to first fundraise $5 million, to eventually reach an amount greater than similar funds of the Spark Alliance and the 612 Humanitarian Relief Fund.
They thus helped Cheung to brainstorm ideas and fundraise, eventually launching over 20 projects with the aim of supporting youngsters. The projects include organising Lung Mun’s own Chinese New Year’s fair, setting up a beauty salon, selling handmade artwork and doing engineering work. The scale of each project varied.
The financial matters of these projects were mainly managed by Cheung and the respective persons-in-charge. A person-in-charge said that these projects brought in a total profit of approximately $4.58 million, yet the money was not used to help youngsters. Instead, it was used by Cheung to cover the deficit of the other areas he managed, without first consulting the concerned persons involved.
Cheung had admitted in a past interview with Stand News about using the Centre’s profit to make up for the losses of selling anti-epidemic products. The amount concerned was roughly $4.6 million.
As of today, the initial target of setting up a $5 million fund has not been met, although the projects had indeed provided short-term job opportunities for youngsters.
Complaint 4: Open record inconsistent with internal project account book
A complaint was made specifically about the project item of a nail-polishing service. The amounts stated on the published statement and on an internal account book do not match.
On June 28, Cheung posted on his personal Facebook account that the person-in-charge of the nail-polishing service was fully responsible for “accounting, collecting revenues, and reporting the amounts.” A photo was attached that showed part of the account book.
FactWire obtained the complete account book for verification. The part which Cheung published matched the book FactWire obtained.
Part of the records on the account book was consistent with the statement Cheung gave Stand News. For example, the expense for consumables in January was listed as $1,195.96 on the book and $1,196 on the statement under “consumables and indirect expenses”.
However, there were also items that do not match. For example, the book showed that $11,034.9 and $16,904 were spent respectively in January and February as salaries. However, in the statement, the fields for January and February were left blank, while salaries in March accounted for $10,936.
Complaint 5: Unusual format of accounting
Not only are the amounts stated on the Centre’s financial statement questionable, its format does not comply with usual accounting practice. For instance, the “direct cost” of C-Bro toys is listed “-$200,000”. The meaning of a ‘negative cost’ is unclear.
Since the Centre is a private company by nature, its financial account is not officially regulated and is thus not required to be audited. Regardless, Cheung, who previously worked as an actuary, said that the Centre’s statement was prepared by a recognised accountant under Lung Mun.
FactWire approached an accountant to comment on the statement. In his opinion, the ‘negative cost’ is definitely an error, but he could not tell if it was intended or caused by mistake. “I don’t believe that (a qualified accountant) can’t be aware of it,” he said, thus pointing out that the statement lacks credibility.
Complaint 6: Private company benefited from public donation to the Centre
A complaint about the beauty salon, as one of the Centre’s projects, was in fact run by a private company owned by Cheung.
FactWire’s investigation shows that the salon was run by LM Spa Ltd., a company founded solely by Cheung on March 2, 2020, instead of HKers Cafe Resource Sharing Centre Ltd.
Two months before that, on January 17, 2020, Cheung said in a Lung Mun Facebook post that he decided to take over a small beauty salon in Tsim Sha Tsui. This was to provide job opportunities for Lung Mun’s beauty students. However, a loss of almost $280,000 in this item, as of May, was reflected in the Centre’s statement.
According to a post prior to the salon’s opening, its equipment include AQUASKIN SMART+, Liftera-V, Dermabell Aquapeel, 808 Laser, and O2 To Derm. A person in the industry told FactWire that such equipment would have cost between $55,000 and $120,000. She deduced that the $80,000 “project cost” listed on the Centre’s statement refers to the rent of the salon and the fees of these equipment.
It is still unclear whether the assets are owned by the Centre or by Cheung in the name of LM Spa Ltd..
Similar confusion surrounds the item of C-Bro toys. The project was run by C Bro Design Production Ltd., a separate company from the Centre. Companies Registry records show that Cheung holds 80% of the shares. Thus, it is unclear where the profits go – to the Centre, or to the shareholders of C Bro Design Production Ltd..
Complaint 7: Missing items from the financial statement
Based on Lung Mun’s Facebook page, Cheung had established at least 20 new projects in the first half of 2020, but only 16 were shown on the Centre’s statement, raising doubt about the full transparency of their finances.
The 16 items listed on the statement were all developed within half a year. At least four of them were run by Cheung’s companies, including LM Spa Ltd. (founded on March 2), C Bro Design Production Ltd. (founded on February 5), Hongkongers Interior Decoration Ltd. (founded on January 8), and Hongkongers Creations Ltd. (founded on December 3, 2019).
The other 12 items were not registered with companies where Cheung acts as director.
Meanwhile, the revenues of two companies founded and wholly-owned by Cheung, Hongkongers Engineering Ltd. and Hongkongers Studio Ltd., were not shown on the Centre’s statement.
Besides, the statement did not include some of the projects previously advertised on Facebook, such as the “Lung Lung” van service, Chinese New Year floral decorations, Valentine’s Day chocolate-making, and a tie-dye workshop. Without open records, it is difficult to ascertain the amount gained or lost, or the accounting methods of these projects.
Cheung had also mentioned plans to run various classes to develop the potential of youngsters, and then to employ them at an hourly rate of $60. The classes include clay-making, marketing, sound-mixing, 3D-digital-molding, and online promotion classes. However, the expenses and revenues of these classes were also absent from the statement.
Complaint 8: Financial matters in a chaos
A former staff member of the Centre told FactWire that cash donations to the Centre were regularly delivered to Cheung’s office for central management. According to the source, only four people were allowed to count the cash, namely Cheung Chun-kit, the Centre’s former director Yip Hin-ting (resigned on December 5, 2020), a female friend of Cheung’s, and a subordinate of Yip’s husband.
According to the statement, the Centre received at least $1.97 million cash donations for its daily operations. During the Chinese New Year fair, revenue reached nearly $2.08 million.
An independent bank account had not been set up for the Centre’s operation of its various projects. Instead, a mix of Cheung’s several personal and company accounts were used.
With reference to past records, the bank account of Lung Mun Catering Company Ltd. was used to operate the sale of Poon Choi and cakes before Chinese New Year last year. The profits from the sale of the New Year gift box and “Five Handmade Cookies” were also received by Lung Mun Catering Company Ltd. However, the cheque payable to the cookie supplier was signed by another company, Prosperity Catering Management Ltd..
Moreover, the person-in-charge of the nail polishing service said that the surplus of this item was transferred directly to Cheung’s personal bank account.
Cheung responded in a previous interview that this was because he was unable to open any bank accounts under the Centre’s name.
In regards to all the above complaints and confusion, FactWire has attempted to enquire Cheung through various means for the past half year, including via phone, WhatsApp, Facebook, email, and by contacting him in person at Lung Mun Cafe. There are a total of 22 questions concerning doubts about the Centre’s financial matters and Lung Mun’s relationship with Fulum Group (see another story here).
Cheung refused to neither be interviewed nor to comment as he is involved in a court case in which he is suing a former employee of the Centre for defamation.