Bloks Group Limited — Earnings Release 2006

Aug 16, 2006

Listed Company Information

Listed Company Information
HK PHARMA<00182> - Results Announcement Hong Kong Pharmaceutical Holdings Limited announced on 16/08/2006: (stock code: 00182 ) Year end date: 31/03/2006 Currency: HKD Auditors' Report: Qualified (Audited ) (Audited ) Last Current Corresponding Period Period from 01/04/2005 from 01/04/2004 to 31/03/2006 to 31/03/2005 Note ('000 ) ('000 ) Turnover : 49,323 62,929 Profit/(Loss) from Operations : 15,316 (13,310) Finance cost : (5,903) (7,098) 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 : 9,413 (3,723) % Change over Last Period : N/A % EPS/(LPS)-Basic (in dollars) : 0.0067 (0.0027) -Diluted (in dollars) : N/A N/A Extraordinary (ETD) Gain/(Loss) : N/A N/A Profit/(Loss) after ETD Items : 9,413 (3,723) 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 At 31 March 2006, the Group had consolidated net current liabilities of approximately HK$79,001,000 (2005: consolidated net current liabilities of approximately HK$98,746,000) and consolidated net liabilities of approximately HK$77,758,000 (2005: HK$87,171,000). The Group however generated a profit attributable to equity holders of the Company for the year ended 31 March 2006 of approximately HK$9,413,000 (2005: net loss of HK$3,723,000) and reported a decrease in cash and cash equivalents for the year ended 31 March 2006 of approximately HK$2,423,000 (2005: HK$1,450, 000). Notwithstanding the adverse financial position of the Group as at 31 March 2006, the Provisional Liquidators have prepared these financial statements on a going concern basis as they believe that there are good prospects that the Restructuring Proposal as outlined below can be successfully implemented. 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 (the "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. A subscription agreement was also entered into by the Company, the Provisional Liquidators and the Investor pursuant to which the Investor has agreed to subscribe for and the Company has agreed to issue and allot the subscription shares and the subscription preference shares. 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, the magnitude of the claims against the Company and the second stage delisting procedures, 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. A document containing, inter alia, details of the Restructuring Proposal and a notice convening the First SGM was despatched to the Shareholders on 20 February 2006. At the First SGM held on 14 March 2006, the resolutions proposed to approve the Ensure Settlement and the Hua xin Disposal were passed but the other resolutions were voted down by the Independent Shareholders. The results of the First SGM were announced on 9 June 2006. However, since the First SGM and up to the Latest Practicable Date, despite comments by various parties, no alternative proposal to restructure the Company has been forthcoming. Since the First SGM, having realised that there is no alternative proposal and the outcome will be the winding up of the Company, certain major Shareholders have written to the Provisional Liquidators requesting, pursuant to the bye-laws of the Company, that the Provisional Liquidators convene a new special general meeting. The Provisional Liquidators have received requests from Shareholders representing over 65% of the existing issued share capital of the Company in aggregate to convene a new special general meeting to reconsider the Restructuring Proposal. Should the Group be unable to achieve a successful restructuring and continue in business as a going concern, adjustments would have to be made to restate the values 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 ACCOUNTING POLICIES The consolidated financial statements for the year ended 31 March 2006 have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which term collectively includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. During the current year, the Group has adopted the new and revised HKFRSs, HKASs and Interpretations, issued by the Hong Kong Institute of Certified Public Accountants, which are effective for accounting periods commencing on or after 1 January 2005. The adoption of the new and revised HKFRSs and HKAS's has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group's and the Company's financial statements. Up to the date of these financial statements, HKICPA has issued the mendments, new standards and interpretations which are not yet effective for the accounting period ended 31 March 2006 and which have not been adopted in these financial statements. The Group is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of these amendments, new standards and interpretations is unlikely to have a significant impact on the Group's results of operations and financial position. 4 DISPOSAL OF SUBSIDIARIES Two of the Group's subsidaries, Guizhou Ensure Chain Pharmacy Company Limited and Guizhou Ensure Medical Company Limited (collectively the " Ensure subsidiaries") which are held via Joinbest Investment Limited (" Joinbest"), were deconsolidated as of 31 March 2004. On 14 June 2005, the Provisional Liquidators agreed to dispose of Joinbest to the minority shareholders of the Ensure subsidiaries and completion for the disposal was on 5 October 2005. Consideration for the disposal consisting of cash in the amount of HK$3,000,000 and cancellation of the Company's convertible notes in the amount of HK$12,254,400 was received in October 2005 following sanction of the disposal by the High Court. One of the Group's subsidiaries, Shanghai Hua Xin Biotechnology Inc. (" Hua Xin") is a Sino-foreign co-operative joint venture company established in Mainland China and acquired by the Group in 2001, with an operating period of 45 years commencing from 19 January 1993, was deconsolidated as of 30 November 2004. Pursuant to an agreement dated on 15 November 2005, which was completed on 8 February 2006, the Provisional Liquidators sold the Group's 57% equity interest in Hua Xin for a consideration of HK$15 million realising a gain on disposal of approximately HK$13.6 million. The disposal of Hua Xin also involves an assignment of debts to a third party of approximately (i) HK$31.26 million owing by Hua Xin to the Company, and (ii) HK$0.58 million owing by Hua Xin's immediate holding company to a fellow subsidiary. 5. EARNINGS / LOSS PER SHARE The calculation of basic earnings per share is based on the profit attributable to equity holders of the Company for the year of approximately HK$9,413,000 (2005: net loss of HK$3,723,000), and the weighted average number of 1,403,796,698 (2005: 1,403,796,698) ordinary shares in issue during the year. Diluted earnings/loss per share amounts for the years ended 31 March 2006 and 2005 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. 6 DIVIDENDS The Provisional Liquidators do not recommend payment of any dividend for the year ended 31 March 2006 (2005: Nil). 7 DETAILS OF AUDITORS' QUALIFICATION Basis of opinion We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"), except that the scope of our work was limited as explained below. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Provisional Liquidators in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's and the Group's circumstances, consistently applied and adequately disclosed. We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However the evidence available to us was limited as set out in detail in the following paragraphs. As more fully explained in Note 2 to the financial statements, dealing in the Company's shares on The Stock exchange of Hong Kong Limited ("the Stock Exchange") has been suspended since 5 August 2004. On 13 October 2004 the High Court of Hong Kong ("the Court") appointed Mr. Cosimo Borrelli and Mr. Kelvin Flynn both of Alvarez & Marsal Asia Limited as joint and several provisional liquidators (the "Provisional Liquidators") of the Company. On 23 December 2004, the Provisional Liquidators, the Company and a potential investor ("the Investor") entered into an exclusivity agreement regarding the implementation of a restructuring proposal (the "Restructuring Proposal"). The Restructuring Proposal is subject to the approval of all relevant parties, including the regulatory authorities, creditors and shareholders. The implementation of the Restructuring Proposal is also subject to the grant of a whitewash waiver from the Executive Director of the Securities and Futures Commission under the Hong Kong Code on Takeovers and Mergers from the obligations to make a general offer for all the shares in the Company not already owned by the Investor and parties acting in concert with it. The Rules Governing the Listing of Securities issued by the Stock Exchange require, inter alia, that companies whose shares are listed on the Stock Exchange submit audited financial statements to shareholders within 4 months of the balance sheet date. However, the audit of the final results of the Company and its subsidiaries for the year ended 31 March 2006 was necessarily delayed while the Restructuring Proposal was being finalised. We were appointed auditors on 16 February 2005. The Provisional Liquidators were appointed on 13 October 2004 pursuant to an Order of the High Court. Upon the appointment of the Provisional Liquidators, the powers of the directors were suspended with regard to the affairs and business of the Company. As further set out in Note 2 to the financial statements, the Provisional Liquidators have not been able to provide us with all the information that we required in relation to our audit for the year ended 31 March 2006. In consequence, we 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 we could adopt to obtain sufficient evidence regarding the accuracy and completeness of the assets, liabilities, income and expenses of the Company and the Group. We refer to Note 2 to the financial statements which indicates that the Restructuring Proposal was originally voted down at the SGM held on 14 March 2006. Following the outcome of the SGM on 14 March 2006, the completion of the restructuring scheme has been delayed. Correspondingly, additional restructuring costs have been incurred which are considerably higher than initially anticipated. Due to the uncertainty surrounding the completion of the restructuring scheme and discussions with the Investor to structure a revised costs arrangement, the commencement of the audit process (which includes the auditors attending the stocktake) was delayed. As a result, we were not instructed to attend the year-end stocktake. In consequence we were unable to carry out auditing procedures necessary to obtain adequate assurance regarding the quantities and condition of inventories, appearing in the balance sheet at HK$5,810,000. There were no other satisfactory audit procedures that we could adopt to obtain sufficient evidence regarding the existence and value of inventories. Any adjustment to the figure may have consequential significant effect on the profit for the year and net liabilities at 31 March 2006. Fundamental uncertainties relating to the basis of preparation of financial statements and contingent liabilities (i) Basis of preparation of financial statements As more fully disclosed in Note 2 to the financial statements, the Provisional Liquidators were only appointed on 13 October 2004 pursuant to an Order of the High Court. The Provisional Liquidators are therefore not in a position to represent whether balances brought forward at 1 April 2004 are true and complete. The consolidated financial statements show a net deficiency of amounts attributable to equity holders of the Company of HK$77,758,000 at 31 March 2006. As disclosed in Note 2 to the financial statements, 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. 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 fixed assets as current assets. (ii) Contingent liabilities As disclosed in Note 35 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 the notes to the financial statements. We consider that appropriate disclosures have been made in the financial statements concerning the above fundamental uncertainties, but we 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 2006. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Qualified opinion: Disclaimer on view given by financial statements and disagreement about accounting treatment As more fully explained in Note 38, restructuring costs incurred up to 31 March 2006 have not been provided for in these financial statements. In our opinion, such expenses should be recognised as liabilities as required by Hong Kong Accounting Standard 37 "Provisions, Contingent Liabilities and Contingent Assets". Since we have not been provided with details of the estimated unprovided restructuring expenses at 31 March 2006, we are not able to quantify the effect of this failure to comply with the accounting standard. Because of the significance of the possible effects of the various limitations in evidence available to us, as set out in the Basis of Opinion section of our report above, we are 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 2006 or of the Group's profit and cash flows for the year then ended. In all other respects, except for the non-recognition of liabilities referred to above, in our opinion the financial statements have been properly prepared in accordance with the Hong Kong Companies Ordinance. As the Provisional Liquidators were not able to obtain all the information that we required in relation to our audit, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit and we were unable to determine whether proper books of account have been maintained.