Bloks Group Limited — Annual Report 2005

Feb 10, 2006

Listed Company Information

Listed Company Information
HK PHARMA<00182> - Results Announcement Hong Kong Pharmaceutical Holdings Limited announced on 10/02/2006: (stock code: 00182 ) Year end date: 31/03/2005 Currency: HKD Auditors' Report: Qualified (Audited ) (Audited ) Last Current Corresponding Period Period from 01/04/2004 from 01/04/2003 to 31/03/2005 to 31/03/2004 Note ('000 ) ('000 ) Turnover : 62,929 142,004 Profit/(Loss) from Operations : (13,310) (83,503) Finance cost : (7,098) (11,517) Share of Profit/(Loss) of Associates : N/A N/A Share of Profit/(Loss) of Jointly Controlled Entities : N/A N/A Profit/(Loss) after Tax & MI : (3,723) (91,914) % Change over Last Period : N/A % EPS/(LPS)-Basic (in dollars) : (0.0027) (0.0655) -Diluted (in dollars) : N/A N/A Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : (3,723) (91,914) Final Dividend : NIL NIL per Share (Specify if with other : N/A N/A options) B/C Dates for Final Dividend : N/A Payable Date : N/A B/C Dates for (-) General Meeting : N/A Other Distribution for : N/A Current Period B/C Dates for Other Distribution : N/A Remarks: 1. APPOINTMENT OF PROVISIONAL LIQUIDATORS Cosimo Borrelli and Kelvin Edward Flynn were appointed as joint and several provisional liquidators ( the "Provisional Liquidators") of the Company pursuant to an Order of the High Court of Hong Kong Special Administrative Region dated 13 October 2004. 2 BASIS OF PREPARATION AND ACCOUNTING POLICIES The consolidated financial statements for the year ended 31 March 2005 have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention. The consolidated financial statements have been prepared on the going concern basis. In the opinion of the Provisional Liquidators, the Group and the Company would not be a going concern at the balance sheet date if the Restructuring Proposal is not successfully implemented. On 23 December 2004, the Provisional Liquidators entered into an escrow and exclusivity agreement with a preferred investor (the "Investor") regarding the implementation of a restructuring proposal for the Company (the "Restructuring Proposal"). On 7 September 2005, a restructuring agreement was entered into by the Company and the Investor for the implementation of the Restructuring Proposal. The proposed restructuring, if successfully implemented, will, among other things, result in: (i) a restructuring of the share capital of the Company through par value reduction, share consolidation and increase in authorised share capital as contained in the capital restructuring; (ii) all the creditors of the Company discharging and waiving their claims against the Company by way of schemes of arrangements under section 166 of the Hong Kong Companies Ordinance and section 99 of the Bermuda Companies Act ("Schemes"); (iii) the entire interest of the Company in its dormant or insolvent subsidiaries being transferred to a nominee of the scheme administrators of the Schemes for a nominal consideration; and (iv) the resumption of trading in the new shares of the Company upon completion of the proposed restructuring ("Completion") subject to sufficient public float being restored. Having reviewed and considered the operations and affairs of the Company and its subsidiaries and the magnitude of the claims against the Company, the Provisional Liquidators concluded that the Proposed Restructuring represents the best means available for the Company to be returned to solvency and to continue with the development and enhancement of its business. As at the date of this report, the Provisional Liquidators have received in-principle support from creditors representing more than 75% of the total indebtedness of the Company. If the Restructuring Proposal is not successfully implemented, adjustments might have to be made further to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. 3. DECONSOLIDATION OF SUBSIDIARIES Two of the Company's subsidiaries, Guizhou Ensure Chain Pharmacy Company Limited and Guizhou Ensure Medical Company Limited (collectively the " Ensure Subsidiaries"), were deconsolidated as of 31 March 2004 since the Provisional Liquidators considered control to have been lost on this date. The deconsolidated assets and liabilities have been classified as investments in securities and are carried forward at HK$10,460,000 carrying value as at 31 March 2004 and 31 March 2005. One of the Company's subsidiaries, Shanghai Hua Xin High Biotechnology Inc.("Hua Xin"), was deconsolidated as of 30 November 2004 since the Provisional Liquidators considered control to have been lost on this date. The consolidated profit and loss account of the Group includes the results of the deconsolidated subsidiary from 1 April 2004 up to 30 November 2004 and the gain on deconsolidation is based on available unaudited management accounts. The deconsolidated assets and liabilities as at 30 November 2004 have been classified as an investment in security and are carried forward at nil carrying value as at 31 March 2005. Please refer to "DETAILS OF AUDITORS' QUALIFICATION" below for further remarks. 4. LOSS PER SHARE The calculation of basic loss per share is based on the net loss from ordinary activities attributable to shareholders for the year of approximately HK$3,723,000 (2004: HK$91,914,000), and the weighted average number of 1,403,796,698 (2004: 1,403,796,698) ordinary shares in issue during the year. Diluted loss per share amounts for the years ended 31 March 2005 and 2004 have not been presented because the effects of the assumed conversion of the share options and convertible notes of the Company during these years were anti-dilutive. 5. DIVIDENDS The Provisional Liquidators do not recommend payment of any dividend for the year ended 31 March 2005 ( 2004: Nil). 6. DETAILS OF AUDITORS' QUALIFICATION Fundamental uncertainties relating to the basis of preparation of financial statements and contingent liabilities. In forming the audit opinion, the auditors are required to obtain all the information and explanations which were considered necessary in order to provide them with sufficient evidence to give reasonable assurance as to whether the consolidated financial statements are free from material misstatement. However the evidence available and their scope of audit work were limited. The auditors were appointed on 16 February 2005. The Provisional Liquidators were appointed on 13 October 2004 pursuant to an Order of the High Court and therefore are not in a position to represent that all transactions entered into in the name of the Company and its subsidiaries during the period from 1 April 2004 to their appointment date have been included in the financial statements, also as to whether balances brought forward at 1 April 2004 are true and complete. The Provisional Liquidators have not been able to provide to the auditors with all the information that were required in relation to their audit for the year ended 31 March 2005. In consequence, the auditors were unable to carry out all of the auditing procedures necessary to obtain adequate assurance regarding the assets, liabilities, income and expenses appearing in the financial statements. There were no satisfactory audit procedures that they could adopt to obtain sufficient evidence regarding the accuracy and completeness of the assets, liabilities, income and expenses of the Company and the Group. As the Provisional Liquidators were not able to obtain all the information that the auditors required in relation to the audit, they have not obtained all the information and explanations that they considered necessary for the purpose of the audit and were therefore unable to determine whether proper books of account have been maintained. With regard to the deconsolidation of the Ensure Subsidiaries, the auditors were unable to obtain sufficient information and there were no practical alternative audit procedures that they could perform to satisfy themselves that control was lost as of this date. If control was lost subsequent to 31 March 2004, the consolidated profit and loss account would include the results of the subsidiaries for period up to their revised deconsolidation date during the year ended 31 March 2005. Adjustments for any additional amounts to be consolidated would affect the net loss from the ordinary activities attributable to shareholders of the Group for the year ended 31 March 2005. In addition, in relation to the deconsolidation of Hua Xin, the auditors were also unable to satisfy themselves as to the amounts in respect of the opening balances of Hua Xin as at 1 April 2004. The consolidated profit and loss account of the Group includes the results of the deconsolidated subsidiaries from 1 April 2004 up to 30 November 2004 and the calculation of the gain on deconsolidation is based on available unaudited management accounts. The profit and loss account relating to the deconsolidated subsidiary comprises turnover of HK$8,238,000; cost of sales of HK$4,267, 000; other revenue of HK$387,000; selling and distribution costs of HK$2, 304,000; administrative expenses of HK$4,800,000; other operating expenses of HK$1,771,000 and finance costs of HK$2,334,000. In addition, the auditors were unable to satisfy themselves as to the amounts in respect of the opening balances of Hua Xin as at 1 April 2004The deconsolidated assets and liabilities as at 30 November 2004 have been classified as an investment security and are carried forward at nil carrying value as at 31 March 2005. The auditors were unable to obtain sufficient information and there were no practical alternative audit procedures that they could perform to satisfy themselves that the amounts consolidated in respect of the deconsolidated subsidiary are fairly stated. Any adjustments to the amounts consolidated would affect the net loss from the ordinary activities attributable to shareholders of the Group for the year ended 31 March 2005. In addition to the limitations in audit scope regarding the amounts consolidated, the auditors have been unable to ascertain whether control of the subsidiary was lost on 30 November 2004. If control was lost at a different date to 30 November 2004, the consolidated profit and loss account would include the subsidiary's results up to the revised date of loss of control. The auditors have considered the adequacy of the disclosures made in the notes to the financial statements concerning the adoption of the going concern basis on which the financial statements have been prepared. As disclosed in the notes to the financial statements, the consolidated financial statements have been prepared on the going concern basis, the validity of which depends upon the successful outcome of the proposed restructuring plan of the Group and the attainment of profitable and positive cash flow operations. In the opinion of the Provisional Liquidators, the Group and the Company would not be a going concern at the balance sheet date if the Restructuring Proposal is not successfully implemented. If the Restructuring Proposal is not successfully implemented, adjustments might have to be made further to reduce the value of assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities, respectively. As disclosed in the notes to the financial statements, the Provisional Liquidators have not conducted full searches for liabilities of the Group and the Company since a formal adjudication process will be undertaken pursuant to the Restructuring Proposal. Accordingly there is a possibility that claims exist against the Group and the Company which have not been provided for or disclosed in these notes to the financial statements. The auditors considered that appropriate disclosures have been made in the financial statements concerning the above fundamental uncertainties, but also consider that the uncertainties surrounding the circumstances under which the financial statements have been prepared are such that they form part of our overall disclaimer on the view given by the financial statements for the year ended 31 March 2005. Qualified opinion: Disclaimer on view given by financial statements Because of the significance of the possible effects of the various limitations in evidence available, the auditors were unable to form an opinion as to whether the financial statements present fairly the state of affairs of the Company and the Group as at 31 March 2005 or of the Group's loss and cash flows for the year then ended. In all other respects, in the opinion of the auditors, the financial statements have been properly prepared in accordance with the Hong Kong Companies Ordinance.