- 2008.08 EXTRAWELL PHAR
Company Name: Extrawell Pharmaceutical Holdings LimitedStock Code: 858Year end: March 31, 2008
Basis for disclaimer of opinion
(a) During the year ended 31 March 2008, the Group had the following significant transactions with 廣東精優惠南醫藥有限公司 (‘‘Domestic Company’’), a company established in the People’s Republic of China (the ‘‘PRC’’):
(i) The Domestic Company handled the Group’s certain trading transactions in the PRC and the amount of the Group’s sales handled by the Domestic Company during the year ended 31 March 2008 was approximately HK$123 million (2007: HK$115 million).
(ii) The Group paid approximately RMB3 million (2007: RMB5 million) and RMB20 million (2007: RMB19 million) to the Domestic Company which acknowledged that it had paid the equivalent amounts to certain customers on behalf of the Group as sales discount and promotion expenses, respectively.
(iii) The Domestic Company had indemnified the Group for the possible PRC tax liabilities in relation to the sales transactions mentioned in (i) above.
In addition, included in trade receivables as at 31 March 2008 is an amount of approximately RMB744,000 (2007: RMB937,000) due from the Domestic Company.
However, we are unable to assess the appropriateness of the classification of the Domestic Company as an unrelated party in accordance with Hong Kong Accounting Standard 24 ‘‘Related Party Disclosures’’ (‘‘HKAS 24’’). Should the Domestic Company be classified as a related party in accordance to HKAS 24, the transactions between the Group and the Domestic Company for the years ended 31 March 2008 and 2007 and the outstanding balances due from the Domestic Company as at 31 March 2008 and 2007 mentioned above should be disclosed in the financial statements.
(b) Included in the intangible assets as at 31 March 2008 is the technological know-how with carrying value of approximately HK$284,260,000 (2007: HK$284,260,000) (‘‘Know-how’’) in relation to an oral insulin product (‘‘Product’’) and the exclusive right for the commercialisation of the Product owned by the Group. The Know-how is held by Fosse Bio-Engineering Development Limited (‘‘Fosse Bio’’), a subsidiary acquired by the Group during the year ended 31 March 2005 through the acquisition of Smart Ascent Limited (‘‘Smart Ascent’’), which owns 51% equity interest in Fosse Bio, from two vendors (the ‘‘Vendors’’) who are related parties of the Company. In addition, included in other receivables as at 31 March 2008 is a receivable with carrying amount of approximately HK$31,780,000 (2007: HK$31,780,000) (‘‘Receivable’’) owed by the Vendors to the Group. The Receivable is secured on the remaining 49% equity interest in Smart Ascent. The recoverability of the carrying values of the Know-how and the Receivable depends upon the result of the clinical trials and the successful launching of the Product, the outcome of which is currently uncertain. The financial statements do not include any adjustments that may be necessary should the clinical trials or the launching of the Product be unsuccessful. We consider that the significant uncertainty has been adequately disclosed in the financial statements. However, in view of the extent of the significant uncertainty, we disclaim our opinion in respect of the carrying values of the Know-how and the Receivable as at 31 March 2008 and 2007.
Any adjustments to the above figures might have a significant consequential effect on the Group’s results for the years ended 31 March 2008 and 2007 and net assets of the Group as at 31 March 2008 and 2007.
Disclaimer of opinion: disclaimer on view given by financial statements
Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the consolidated financial statements as to whether they give a true and fair view of the state of the affairs of the Group as at 31 March 2008 and of the Group’s results and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in our opinion the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.