OBIO PHARMACEUTICAL (H.K.) LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US dollars)
OBIO PHARMACEUTICAL (H.K.) LIMITED
CONENTS PAGES
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| 1 |
|
|
CONSOLIDATED BALANCE SHEETS
| 2 - 3 |
|
|
CONSOLIDATED STATEMENTS OF INCOME | 4 |
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
|
AND ACCUMULATED OTHER COMPREHENSIVE INCOME | 5 |
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS | 6 |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 7 - 14 |
ALBERT WONG & CO. CERTIFIED PUBLIC ACCOUNTANTS 7th Floor, Nan Dao Commercial Building 359-361 Queen’s Road Central Hong Kong Tel : 2851 7954 Fax: 2545 4086 ALBERT WONG B.Soc., Sc., ACA., LL.B., C.P.A.(Practising) |
|
To: The board of directors and stockholders of
Obio Pharmaceutical (H.K.) Limited (“the Company”)
Report of Independent Registered Public Accounting Firm
We have reviewed the accompanying interim consolidated balance sheets, related consolidated statements of income, stockholders’ equity and cash flows statement of the Company as of June 30, 2009 and 2008, and for the six-month period then ended. These interim financial information statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
Hong Kong, China Albert Wong & Co.
September 8, 2009
Certified Public Accountants
1
See accompanying notes to the consolidated financial statements
2
OBIO PHARMACEUTICAL (H.K.) LIMITED |
|
CONSOLIDATED BALANCE SHEETS (Continued) |
AS AT JUNE 30, 2009 AND DECEMBER 31, 2008 |
(Stated in US Dollars) |
| Notes |
| 6/30/2009 |
| 12/31/2008 |
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
Share capital | 8 | $ | 1 | $ | 1 |
Accumulated losses |
| (859,792) | (629,869) | ||
Accumulated other comprehensive income |
| 868 | 1,052 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (858,923) | $ | (628,816) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND |
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
| $ | 604,592 | $ | 809,603 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
3
See accompanying notes to the consolidated financial statements
4
OBIO PHARMACEUTICAL (H.K.) LIMITED |
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND |
ACCUMULATED OTHER COMPREHENSIVE INCOME |
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND |
FOR THE YEAR ENDED DECEMBER 31, 2008 |
(Stated in US Dollars) |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
| other |
|
|
|
| Share |
| Accumulated |
| comprehensive |
|
|
|
| capital |
| losses |
| income |
| Total |
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008 | $ | 1 | $ | (319,416) | $ | 1,042 | $ | (318,373) |
Net loss |
| - |
| (310,453) |
| - |
| (310,453) |
Foreign currency translation |
|
|
|
|
|
|
|
|
adjustment |
| - |
| - |
| 10 |
| 10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 | $ | 1 | $ | (629,869) | $ | 1,052 | $ | (628,816) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009 | $ | 1 | $ | (629,869) | $ | 1,052 | $ | (628,816) |
Net loss |
| - |
| (229,923) |
| - |
| (229,923) |
Foreign currency translation |
|
|
|
|
|
|
|
|
adjustment |
| - |
| - |
| (184) |
| (184) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009 | $ | 1 |
| (859,792) |
| 868 |
| (858,923) |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements
5
OBIO PHARMACEUTICAL (H.K.) LIMITED |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 |
(Stated in US Dollars) |
Net cash and cash equivalents (used) sourced | $ | (220,864) | $ | 700,760 |
|
|
|
|
|
Effect of foreign currency translation on |
|
|
|
|
cash and cash equivalents |
| (137) |
| 3,258 |
|
|
|
|
|
Cash and cash equivalents–beginning of year |
| 522,833 |
| 44,833 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents–end of year | $ | 301,832 | $ | 748,851 |
|
|
|
|
|
Supplementary cash flow information: |
|
|
|
|
Interest paid | $ | - | $ | - |
|
|
|
|
|
See accompanying notes to the consolidated financial statements
6
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
1.
ORGANIZATION AND PRINCIPAL ACTIVITY
Obio Pharmaceutical (H.K.) Limited (the “Company”) was established in Hong Kong as a limited company on June 28, 1999. The Company currently operates through itself and one subsidiary, Beijing Obio Pharmaceutical Co., Ltd (“Beijing Obio”) which was incorporated in the People’s Republic of China (the PRC).
The Company and its subsidiary (hereinafter, collectively referred to as (the “Group”)) are engaged in human pharmaceutical research and development.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Method of Accounting
The Company maintains its general ledger and journals with the accrual method accounting for financial reporting purposes. The consolidated financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of consolidated financial statements.
(b)
Principles of consolidation
The consolidated financial statements are presented in US Dollars and include the accounts of the Company and its subsidiary. All significant inter-company balances and transactions are eliminated in consolidation.
The Company owned its subsidiaries soon after its inception and continued to own the equity’s interests through JUNE 30, 2009. The following table depicts the identity of the subsidiary:
|
|
|
| Attributable equity Interest % |
| Registered |
Name of subsidiary |
| Place of Incorporation |
| interest % |
| capital |
|
|
|
|
|
|
|
Beijing Obio Pharmaceutical Co., Ltd |
| PRC |
| 100 |
| $200,000 |
(c)
Use of estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
7
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d)
Economic and political risks
The Company’s operation is conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
(e)
Property, plant and equipment
Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
Office equipment
5 years
Testing equipment
5 years
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income.
(f)
Patents
Patents that are acquired by the Company and/or self-invented are stated as cost less accumulated amortisation. Amortisation is provided over the respective useful lives, using the straight-line method. Estimated useful lives of the patents are 20 years.
(g)
Accounting for the impairment of long-lived assets
The Company periodically evaluates the carrying value of long-lived assets to be held and used, including intangible assets subject to amortization, when events and circumstances warrant such a review, pursuant to the guidelines established in SFAS No. 144. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognised based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.
During the reporting periods, there was no impairment loss.
8
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h)
Cash and cash equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company maintains bank accounts in Hong Kong and the PRC. The Company does not maintain any bank accounts in the United States of America.
(i)
Income taxes
The Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future realization is uncertain.
(j)
Foreign currency translation
The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Hong Kong Dollar (HK$) and Renminbi (RMB). The consolidated financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
The exchange rates used to translate amounts in HK$ and RMB into USD for the purposes of preparing the consolidated financial statements were as follows:
|
| June 30, 2009 |
| December 31, 2008 |
| June 30, 2008 |
Twelve months ended |
|
|
|
|
|
|
HK$ : USD exchange rate |
| - |
| 7.7507 |
| - |
Six months ended |
|
|
|
|
|
|
HK$ : USD exchange rate |
| 7.7504 |
| - |
| 7.8037 |
Average six months ended |
|
|
|
|
|
|
HK$ : USD exchange rate |
| 7.7530 |
| - |
| 7.7975 |
|
| June 30, 2009 |
| December 31, 2008 |
| June 30, 2008 |
Twelve months ended |
|
|
|
|
|
|
RMB : USD exchange rate |
| - |
| 6.8542 |
| - |
Six months ended |
|
|
|
|
|
|
RMB : USD exchange rate |
| 6.8448 |
| - |
| 7.0726 |
Average six months ended |
|
|
|
|
|
|
RMB : USD exchange rate |
| 6.8448 |
| - |
| 7.0726 |
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. In addition, the current foreign exchange control policies applicable in PRC also restrict the transfer of assets or dividends outside the PRC.
9
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k)
Comprehensive income
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other consolidated financial statements. The Company’s current component of comprehensive income is the net income and foreign currency translation adjustment.
(l)
Recent accounting pronouncements
In April 2009, the FASB issued SFAS No. 164,“Not-for-Profit Entities: Mergers and Acquisitions.” SFAS No. 164 improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or non profit activities. This Statement also improves the relevance, representational faithfulness, and comparability of the information a not-for-profit entity provides about goodwill and other intangible assets after an acquisition by amending FASB Statement No. 142, Goodwill and Other Intangible Assets, to make it fully applicable to not-for-profit entities. This Statement is effective for mergers for which the merger date is on or after the beginning of an initial reporting period beginning on or after December 15 , 2009; or acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2009. The adoption of SFAS No. 165 is not expected to have a material impact on the consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before consolidated financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim and annual fiscal periods ending after June 15, 2009. The adoption of SFAS No. 165 is not expected to have a material impact on the consolidated financial statements.
In June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140” (“SFAS No. 166”) and Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 166 will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS No. 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Both SFAS No. 166 and SFAS No. 167 are effective for fiscal years beginning after November 15, 2009. The adoption of SFAS No. 166 and SFAS No. 167 is not expected to have a material impact on the consolidated financial statements.
10
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
3.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to concentrations of credit risk, consists of cash and other receivables as of June 30, 2009 and 2008. The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.
As of June 30, 2009 and 2008, the Company’s bank deposits were all placed with banks in Hong Kong and the PRC where there is currently no rule or regulation in place for obligatory insurance of bank accounts.
The maximum amount of loss due to credit risk that the Company would incur if the counter parties to the financial instruments failed to perform is represented the carrying amount of each financial asset in the balance sheet.
4.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net comprise the followings:
|
| 6/30/2009 |
| 12/31/2008 |
At cost |
|
|
|
|
Office equipment | $ | 6,635 | $ | 3,406 |
Testing equipment |
| 3,895 |
| 3,895 |
|
|
|
|
|
|
|
|
|
|
| $ |
| $ |
|
Less: accumulated depreciation |
| (4,690) |
| (4,216) |
|
|
|
|
|
|
|
|
|
|
| $ | 5,840 | $ |
|
|
|
|
|
|
Depreciation expenses included in the general and administrative expenses for the six months ended June 30, 2009 and 2008 were $475 and $426.
11
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
5.
PATENTS, NET
Patents, net are as follows:
|
| 6/30/2009 |
| 12/31/2008 |
|
|
|
|
|
Patents, at cost | $ | 304,786 | $ | 291,947 |
Less: accumulated amortization |
| (13,815) |
| (8,782) |
|
|
|
|
|
|
|
|
|
|
| $ | 290,971 | $ | 283,165 |
|
|
|
|
|
Amortization included in the general and administrative expenses for the six months ended June 30, 2009 and 2008 were $5,030 and $1,717.
6.
AMOUNT DUE TO A DIRECTOR
Amount due to a director was the amount due to Mr. Francis Chi, and was unsecured, interest free and repayable on demand.
7.
AMOUNT DUE TO ULTIMATE HOLDING COMPANY
Amount due to ultimate holding company was unsecured, interest free and does not have a fixed repayment date.
8.
SHARE CAPITAL
The Company was incorporated at June 28, 1999, with an authorized share capital of HK$50,000 divided into 50,000 shares of HK$1.00 each. Two shares were subscribed upon its incorporation for working capital purpose. Obio Pharmaceutical Holdings Limited has 100% equity ownership.
9.
INCOME TAXES
Pursuant to Hong Kong tax law, the Company is subjected to profits tax imposed at the rate of 16.5% and 17.5% for the six months ended June 30, 2009 and 2008 respectively. No Hong Kong profits tax is provided as there is no estimated assessable profits for the years.
Beijing Obio, being registered in the PRC, is subject to PRC’s Corporate Income Tax (“CIT”) at a rate of 25%. No taxable income was derived from the subsidiary for the year ended June 30, 2009.
No deferred tax has been provided as there are no material temporary differences arising during the six months ended June 30, 2009 and 2008.
12
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
10.
COMMITMENTS AND CONTINGENCIES
The Group has entered into a tenancy agreement for office premises expiring through 2010.
As at June 30, 2009, the Group’s commitments for minimum lease payments under these leases for the next one year and thereafter are as follows:
|
|
|
|
|
June 30, |
|
|
|
|
2010 |
|
| $ | 10,672 |
|
|
|
|
|
11.
RELATED PARTY TRANSACTIONS
In the normal course of its business, the group carried out the following related party transactions during the six months ended June 30, 2009 and for the year ended December 31, 2008.
(a)
The accounting services fee was paid to a related company controlled by Chi Francis, a director of the ultimate holding company.
(b)
The consultancy fee was paid to Chi Francis, a director of the Company.
(c)
The consultancy fee was paid to Chan Bill Piu, a director of ultimate holding company.
(d)
The company secretarial fee was paid to related companies controlled by Chan Kin Man, Eddie, a director of the ultimate holding company.
13
OBIO PHARMACEUTICAL (H.K.) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Stated in US Dollars)
12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, prepaid expenses, amount due from/to a director/fellow subsidiary/holding company, other receivables, and accruals approximate their fair values because of the short maturity of these instruments and the availability of the market rates of interest.
13.
SEGMENT INFORMATION
The Company is principally engaged in business of human pharmaceutical research and development. No significant revenues are derived during the reporting periods. Accordingly, no analysis of the Company’s sales and assets by geographical market is presented.
14