UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 1, 2011
GLOBAL PHARM HOLDINGS GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
|
333-152286
|
20-8767223
|
(State or Other Jurisdiction
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(Commission File Number)
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(IRS Employer
|
of Incorporation)
|
|
Identification No.)
|
25/F New World Center, No. 6009 Yitian Road, Futian District, Shenzhen,
People’s Republic of China
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
86-755-83230226
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
On August 1, 2011, Global Pharm Holdings Group, Inc. (the “
Company
”) filed a Form 8-K (the “Initial Form 8-K”) under Item 1.01 to report the entry into a Share Purchase Agreement (the “
Acquisition Agreement
”) with Chu Zhan Jun, Liang Hai Yan, Hip Lai Ling, Jack Rosen, Jiang Li Hua, Li Ling Yun, Creative Capital Investment Group Co., Ltd., Value-Added Capital Investment Co., Ltd. (collectively the “
Sellers
”), pursuant to which the Sellers agreed to sell and the Company agreed to purchase the aggregate of 50,000 ordinary shares in Pacific Asia Pharm Investment Group Co., Limited (“
Pacific Asia
”), representing the entire issued share capital of Pacific Asia. On August 1, 2011, the Company completed the acquisition (the “
Acquisition
”) contemplated by the Acquisition Agreement, as reported under Item 2.01 of the Initial Form 8-K.
Pacific Asia owns the 100% equity interest of Hong Kong Rich Fortune Chain Drugstores Assets Management Co., Ltd. (“Rich Fortune”), a Hong Kong company, who in turn owns the 100% equity interest of Guangzhou Hairui Xiexin Investment Co., Ltd. (“Hairui Xiexin”). Hairui Xiexin has entered into a number of contractual arrangements with Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. (“GDGY”) and the shareholders of GDGY, pursuant to which Hairui Xiexin acts as the management company for GDGY, a PRC company mainly engaged in the business of managing and supplying retail and franchise drugstores in Guangdong Province, the PRC. With the completion of the Acquisition, GDGY is now indirectly managed by the Company.
This Form 8-K/A is being filed to provide the financial statements of Pacific Asia and the unaudited pro forma financial information of the Company after giving effect to the consummation of the Acquisition.
Item 9.01 Financial Statements and Exhibits
(a)Financial Statements of Business Acquired.
|
Page
|
|
|
Pacific Asia Pharm Investment Group Co., Limited Audited Financial Statements:
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Balance Sheet as of December 31, 2009 and 2010
|
F-3
|
Consolidated Statement of Income and Comprehensive Income for the Year Ended December 31, 2009 and 2010
|
F-4
|
Consolidated Statement of Cash Flows for the Year Ended December 31, 2009 and 2010
|
F-5
|
Consolidated Statement of Shareholders’ Equity for the Year Ended December 31, 2009 and 2010
|
F-6
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Notes to Financial Statements
|
F-7
|
|
|
Pacific Asia Pharm Investment Group Co., Limited Unaudited Financial Statements:
|
|
Consolidated Balance Sheet as of June 30, 2011
|
F-16
|
Consolidated Statement of Income and Comprehensive Income for the Six Months Ended June 30, 2011 and 2010
|
F-17
|
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2011 and 2010
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F-18
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Notes to Unaudited Financial Statements
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F-19
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(b)Pro Forma Financial Information
|
|
|
|
Global Pharm Holdings Group, Inc. Unaudited Pro Forma Condensed Financial Statements:
|
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Unaudited Pro Forma Condensed Financial Information
|
|
Unaudited Pro Forma Condensed Balance Sheets as of December 31, 2010 and June 30, 2011
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F-26
|
Unaudited Pro Forma Condensed Statement of Income for the Year
Ended December 31, 2009 and 2010 and the Six Months Ended June 30, 2011
|
F-27
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Notes to Unaudited Pro Forma Condensed Financial Statements
|
F-28
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[Remainder of page intentionally left blank; signature page follows]
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 15, 2011
|
Global Pharm Holdings Group, Inc.
|
|
|
|
|
By:
|
/s/ An Fu
|
|
An Fu
|
|
Chief Financial Officer
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PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD.
CONSOLIDATED FINANCIAL STATEMENTS
|
AND
|
INDEPENDENT AUDITORS' REPORTS
|
|
DECEMBER 31, 2010 AND 2009
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
F-3
|
|
|
|
|
|
|
Consolidated Statements of Income and Comprehensive Income
|
|
|
F-4
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
F-5
|
|
|
|
|
|
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Statements of Shareholders’ Equity
|
|
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F-6
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|
|
|
|
|
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Notes to Consolidated Financial Statements
|
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F-7 - F-14
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PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
|
|
2010
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,239,249
|
|
|
$
|
2,423,775
|
|
Accounts receivable
|
|
|
765,480
|
|
|
|
1,129,673
|
|
Other receivables
|
|
|
5,005
|
|
|
|
17,025
|
|
Due from related party
|
|
|
69,889
|
|
|
|
-
|
|
Inventories
|
|
|
3,731,882
|
|
|
|
3,359,238
|
|
Total current assets
|
|
|
6,811,505
|
|
|
|
6,929,711
|
|
Property, plant and equipment - net
|
|
|
18,883
|
|
|
|
139,121
|
|
Total assets
|
|
$
|
6,830,388
|
|
|
$
|
7,068,832
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
|
3,740,671
|
|
|
|
3,044,081
|
|
Income taxes payable
|
|
|
414,331
|
|
|
|
315,860
|
|
Other taxes payable
|
|
|
146,937
|
|
|
|
92,853
|
|
Other accrued liabilities
|
|
|
60,266
|
|
|
|
74,055
|
|
Total current liabilities
|
|
|
4,362,205
|
|
|
|
3,526,849
|
|
Total liabilities
|
|
$
|
4,362,205
|
|
|
$
|
3,526,849
|
|
Shareholders’ equity
|
|
|
|
|
|
|
Common stock, par value, $1 per share,
|
|
|
50,000
|
|
|
|
50,000
|
|
50,000 shares authorized,
|
50,000 shares issued and outstanding
|
Statutory surplus reserves
|
|
|
795,027
|
|
|
|
795,027
|
|
Additional paid-in capital
|
|
|
1,430,943
|
|
|
|
1,430,943
|
|
Retained earnings
|
|
|
-
|
|
|
|
931,862
|
|
Accumulated other comprehensive income
|
|
|
192,213
|
|
|
|
334,151
|
|
Total shareholders' equity
|
|
$
|
2,468,183
|
|
|
$
|
3,541,983
|
|
Total liabilities and shareholders' equity
|
|
$
|
6,830,388
|
|
|
$
|
7,068,832
|
|
See accompanying notes to consolidated financial statements.
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
|
|
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
FOR THE YEARS ENDED DECEMBER 31,
|
|
|
2010
|
|
|
2009
|
|
Revenues
|
|
$
|
45,379,191
|
|
|
$
|
37,829,506
|
|
Cost of goods sold
|
|
|
38,290,291
|
|
|
|
31,988,386
|
|
Gross profit
|
|
|
7,088,900
|
|
|
|
5,841,120
|
|
Expenses:
|
|
|
|
|
|
|
Operating expenses
|
|
|
330,765
|
|
|
|
329,156
|
|
General and administrative
|
|
|
244,206
|
|
|
|
336,934
|
|
Income from operations
|
|
|
6,513,929
|
|
|
|
5,175,030
|
|
Interest (income)
|
|
|
(10,693
|
)
|
|
|
(6,822
|
)
|
Miscellaneous expense
|
|
|
17,699
|
|
|
|
3,597
|
|
Income before income taxes
|
|
|
6,506,923
|
|
|
|
5,178,255
|
|
Provision for income taxes
|
|
|
1,630,100
|
|
|
|
1,294,775
|
|
Net income
|
|
|
4,876,823
|
|
|
|
3,883,480
|
|
Other comprehensive income
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(141,938
|
)
|
|
|
334,151
|
|
Total comprehensive income
|
|
$
|
4,734,885
|
|
|
$
|
4,217,631
|
|
See accompanying notes to consolidated financial statements
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE YEARS ENDED DECEMBER 31,
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,876,823
|
|
|
$
|
3,883,480
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
|
21,656
|
|
|
|
35,739
|
|
Loss on disposal of property, plant and equipment
|
|
|
11,504
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
393,692
|
|
|
|
(314,649
|
)
|
Other receivables
|
|
|
12,293
|
|
|
|
(12,975
|
)
|
Inventories
|
|
|
(246,684
|
)
|
|
|
41,818
|
|
Accounts payable
|
|
|
573,017
|
|
|
|
613,790
|
|
Other accrued liabilities
|
|
|
(15,988
|
)
|
|
|
(54,405
|
)
|
Income and other taxes payable
|
|
|
134,413
|
|
|
|
102,550
|
|
Net cash provided by operating activities
|
|
|
5,760,726
|
|
|
|
4,295,348
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
-
|
|
|
|
(8,549
|
)
|
Proceeds on sale of property, plant and equipment
|
|
|
87,877
|
|
|
|
-
|
|
Net cash provided by/(used in) investing activities
|
|
|
87,877
|
|
|
|
(8,549
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Paid-in capital
|
|
|
-
|
|
|
|
233,906
|
|
Dividend paid to the former shareholders
|
|
|
(6,120,126
|
)
|
|
|
(4,145,620
|
)
|
Net cash used in financing activities
|
|
|
(6,120,126
|
)
|
|
|
(3,911,714
|
)
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(271,523
|
)
|
|
|
375,085
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
86,997
|
|
|
|
523
|
|
Cash and cash equivalent - beginning of year
|
|
|
2,423,775
|
|
|
|
2,048,167
|
|
Cash and cash equivalent - end of year
|
|
$
|
2,239,249
|
|
|
$
|
2,423,775
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,531,629
|
|
|
$
|
1,228,968
|
|
See accompanying notes to consolidated financial statements
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
FOR THE PERIOD ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in
capital
|
|
|
Accumulated
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
|
|
|
Statutory
|
|
|
comprehensive
|
|
|
shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
(deficit)
|
|
|
reserve
|
|
|
income
|
|
|
equity
|
|
Balance, January 1, 2009
|
|
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
1,197,037
|
|
|
$
|
-
|
|
|
$
|
1,467,711
|
|
|
$
|
521,318
|
|
|
$
|
-
|
|
|
$
|
3,236,066
|
|
Paid-in capital
|
|
|
|
|
|
|
|
|
(1,197,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,197,037
|
)
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
1,430,943
|
|
|
|
|
|
|
|
|
|
|
|
|
1,430,943
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,883,480
|
|
|
|
|
|
|
|
|
|
3,883,480
|
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,145,620
|
)
|
|
|
|
|
|
|
|
|
(4,145,620
|
)
|
Transfer to statutory reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273,709
|
)
|
|
|
273,709
|
|
|
|
|
|
|
-
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334,151
|
|
|
|
334,151
|
|
Balance, December 31, 2009
|
|
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
1,430,943
|
|
|
$
|
931,862
|
|
|
$
|
795,027
|
|
|
$
|
334,151
|
|
|
$
|
3,541,983
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,876,823
|
|
|
|
|
|
|
|
|
|
4,876,823
|
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,120,126
|
)
|
|
|
|
|
|
|
|
|
(6,120,126
|
)
|
Dividend refundable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,889
|
|
|
|
|
|
|
|
|
|
69,889
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,552
|
|
|
|
|
|
|
(141,938
|
)
|
|
|
99,614
|
|
Balance, December 31, 2010
|
|
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
1,430,943
|
|
|
$
|
-
|
|
|
$
|
795,027
|
|
|
$
|
192,213
|
|
|
$
|
2,468,183
|
|
See accompanying notes to consolidated financial statements
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
Note 1 – Business and Organization
Pacific Asia Pharm Investment Group Co., Limited (“Pacific Asia” or the “Company”) was incorporated in the British Virgin Islands on April 8, 2010. It owns the 100% equity interest of Hong Kong Rich Fortune Chain Drugstores Assets Management Co., Ltd. (“Rich Fortune”), a Hong Kong holding company, which was incorporated on January 12, 2009 under the laws of Hong Kong and owns the 100% equity interest of Guangzhou Hairui Xiexin Investment Consulting Co., Ltd. (“Hairui Xiexin”). Hairui Xiexin was incorporated on June 3, 2011 under the laws of the People’s Republic of China (the “PRC”).
Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. (“GDGY”), established on June 6, 2001 in Guangzhou City, the capital city of Guangdong province, under the laws of the PRC, is a company mainly engaged in the business of managing its chain drugstores, and supplying products to its chain drugstores and franchised drugstores in Guangdong Province, PRC.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of income and comprehensive income, shareholders’ equity and cash flows include all adjustments, consisting only of normal recurring items.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect the adjustments considered necessary for a fair presentation of the Company’s results as of December 31, 2010 and 2009, and for the periods then ended.
The consolidated financial statements include the accounts of Pacific Asia and its subsidiaries, Rich Fortune and Hairui Xiexin, and the
variable interest entity (“VIE”)
, GDGY.
Translation Adjustment
As of December 31, 2010 and 2009, the accounts of the Company were maintained in Renminbi (“RMB”). Such financial statements were translated into United States Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the
Financial Accounting Standards Board's (“FASB”)
Accounting Standards Codification (“ASC 830”), with the RMB as the functional currency. According to ASC 830, all assets and liabilities were translated at the current exchange rate, shareholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”), as a component of shareholders’ equity. Transaction gains and losses are reflected in the income statement.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Comprehensive Income
The Company follows the Comprehensive Income Topic of the FASB Accounting Standards Codification (“ASC 220”). Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
Risks and Uncertainties
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
There were no items of this nature during 2010 and 2009.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in banks and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.
Accounts Receivable
The Company records accounts receivable, net of allowances for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a quarterly basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer's historical payment history, its current credit-worthiness and current economic trends. The amount of the provision, if any is recognized in the consolidated statement of operations within "General and administrative expenses". Accounts are written off after exhaustive efforts at collection. There are no allowances for doubtful accounts as of December 31, 2010 and 2009.
Inventories
Inventories are stated at the lower of cost (determined on a weighted average basis) or market value. Work-in-progress is composed of direct materials, direct labor, manufacturing overhead, and an attributable portion of land lease cost that has been capitalized as a component of inventory. The capitalized land lease cost will be recorded in cost of goods sold at such time as the goods are sold. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates and reflected in cost of sales.
Long-Lived Assets
The Company adopted the Property, Plant and Equipment Topic of the FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes
Statement of Financial Accounting Standards (“SFAS”)
No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, management of the Company believes that, as of December 31, 2010 and 2009, there were no impairments of its long-lived assets.
Lease Obligations
All non-cancellable leases with an initial term more than one year are categorized as either capital leases or operating leases. Assets recorded under capital leases are amortized according to the methods employed for property and equipment or over the term of the related lease, if shorter.
Revenue Recognition
The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable, and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer. Revenues are recorded net of value-added taxes.
Income Taxes
The Company is subject to the Income Tax Law of the PRC. Income taxes are accounted for under FASB ASC-740 Income Taxes or ASC 740. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax loss carry forwards. Any deferred tax assets and liabilities would be measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The statutory rate under the laws of the PRC is twenty-five percent.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. As of December 31, 2010 and 2009, there was no allowance for uncollectible accounts as previously discussed.
Recent Accounting Pronouncements
In January 2010, FASB issued ASU No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and are to be applied on a retrospective basis. The adoption of this ASU did not have a material impact on its consolidated statements.
In January 2010, FASB issued Accounting Standard Update (
“
ASU
”
) No. 2010-02, Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts accounting standards regarding non-controlling interests. If an entity has previously adopted the non-controlling interests accounting standards as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted non-controlling interests accounting standards. The adoption of this ASU did not have a material impact on its statements.
In January 2010, FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. As ASU 2010-06 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its financial statements.
In April 2010, FASB issued ASU 2010-13, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. It addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB ASC Topic 718, Compensation—Stock Compensation, was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments will be effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. The Company does not expect the adoption of ASU 2010-13 to have a significant impact on its consolidated financial statements.
In December 2010, FASB issued ASU 2010-28 which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual testes if an event occurs or circumstances changes that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010- 28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. Early adoption is not permitted. The Company does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements.
In December 2010, FASB issued ASU 2010-29 which addressed diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the adoption of this ASU will have a material impact on its financial statements.
VIE
To satisfy PRC laws and regulations, the Company conducts distribution to drugstores in the PRC through its VIE, GDGY, in which the Company does not own equity interest. The Company consolidates GDGY, of which the Company is the primary beneficiary, in its consolidated financial statements.
GDGY, the consolidated VIE, was funded by its shareholders,
Guangdong Guo Yao Pharmaceutical Co., Ltd
and Weijun Peng. Under contractual agreements with Hairui Xiexin, the 100% owned subsidiary of Pacific Asia, the shareholders of GDGY are required to transfer their ownership in GDGY to Hairui Xiexin or designees of Hairui Xiexin, if permitted by PRC laws and regulations. All voting rights of GDGY are assigned to Hairui Xiexin, and Hairui Xiexin has the right to designate all directors and senior management personnel of GDGY, and also has the obligation to absorb losses of GDGY. The shareholders of GDGY have pledged their shares in GDGY as collateral for the interests of Hairui Xiexin in GDGY and Hairui Xiexin’s right to acquire GDGY. In addition, under the contractual arrangements, Hairui Xiexin has the power to direct activities of GDGY, and has full right to control and use the assets of GDGY. As of December 31, 2010, the total assets of GDGY were $6.8 million, mainly comprising cash and cash equivalents, accounts receivable and inventories. As of December 31, 2010, the total liabilities of GDGY were $4.4 million, mainly comprising accounts payable and accrued liabilities to suppliers and agents. These balances are reflected in Pacific Asia’s consolidated financial statements with intercompany transactions eliminated.
As GDGY is incorporated as a limited liability company under the laws of the PRC, its creditors do not have recourse to the general credit of the Company for any of the liabilities of GDGY, which consisted of accounts payable of $3.7 million, tax payable of approximately $0.6 million, and other accrued liabilities of $690,000, totaling $4.4 million. Currently there is no contractual arrangement that could require the Company to provide additional financial support to GDGY. As the Company is conducting distribution to drugstores in the PRC mainly through GDGY, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
Note 3 - Property, Plant and Equipment
|
As of December 31, 2010 and 2009, Property, Plant & Equipment consist of the following:
|
December 31, 2010
|
|
|
December 31, 2009
|
|
Office equipment
|
$
|
38,107
|
|
|
$
|
36,800
|
|
Transportation equipment
|
|
27,898
|
|
|
|
172,417
|
|
Less: Accumulated depreciation
|
|
(47,122
|
)
|
|
|
(70,096
|
)
|
Property, plant and equipment, net
|
$
|
18,883
|
|
|
$
|
139,121
|
|
Depreciation expenses totaled $22,240 and $35,764 for the years ended December 31, 2010 and 2009, respectively.
Note 4 - Other Taxes Payable
|
As of December 31, 2010 and 2009, other taxes payable consist of the following:
|
December 31,2010
|
|
|
December 31,2009
|
|
Value-add-tax payable
|
$
|
132,523
|
|
|
$
|
80,897
|
|
City construction tax payable
|
|
9,544
|
|
|
|
6,015
|
|
Stamp duty payable
|
|
1,055
|
|
|
|
906
|
|
Business tax payable
|
|
3,815
|
|
|
|
5,035
|
|
Total other tax payable
|
$
|
146,937
|
|
|
$
|
92,853
|
|
Note 5 - Income Taxes
British Virgin Island Tax
Under the current law of the British Virgin Islands, the Company is not subject to tax on its income or capital gains. In addition, upon any payment of dividend by the Company, no withholding tax is imposed.
Hong Kong
Rich Fortune
is incorporated in Hong Kong and is subject to Hong Kong profits tax on income arising in or derived from Hong Kong. No provision for Hong Kong profits tax was made in the consolidated financial statements as the Company derived no taxable income from Hong Kong for the years ended December 31, 2010 and 2009.
PRC
GDGY was incorporated in the PRC and is
subject to
PRC Enterprise Income Tax
.
Pursuant to the new PRC Enterprise Income Tax Law, enterprise income tax is generally imposed at a statutory rate of 25%.
The provision for income taxes for the years ended December 2010 and 2009 were as follows:
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Current provision for income tax- PRC
|
|
$
|
1,630,101
|
|
|
$
|
1,294,775
|
|
Income taxes payable at December 31, 2010 and 2009 consisted of the following:
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Income taxes payable
|
|
$
|
414,331
|
|
|
$
|
315,860
|
|
Note 6 – Related Party Transaction
|
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
The following sets forth the transactions with the related parties during the year ended December 31, 2010 and 2009:
In 2010, GDGY sold a Mercedes-Benz S300 car for $87,877 (RMB 600,000) to
Guangdong Guo Yao Pharmaceutical Co., Ltd. The car
was purchased by GDGY from a third party in 2009 for $150,642 (RMB 993,000), and carried a net book value of $99,381 (RMB 678,550).
In 2010, GDGY paid a dividend of $4,896,101 (RMB 33,106,008) to Guangdong Guo Yao Pharmaceutical Co., Ltd, its former shareholder, and a dividend of $1,224,025 (RMB 8,276,502) to Weijun Peng, an officer and former shareholder, totaling $6,120,126 (RMB 41,382,511).
In 2009, GDGY paid a dividend of $3,316,496 (RMB 22,648,810) to Guangdong Guo Yao Pharmaceutical Co., Ltd, its former shareholder, and a dividend of $829,124 (RMB 5,662,202) to Weijun Peng, an officer and former shareholder, totaling $4,145,620 (RMB 28,311,012).
As of December 31, 2010 and 2009, the respective amount outstanding with related party is as follow:
|
|
|
Ended December 31,
|
|
Related Party
|
Relationship
|
|
2010
|
|
|
2009
|
|
Guangdong Guo Yao Pharmaceutical Co., Ltd
|
Former shareholder
|
|
$
|
69,889
|
|
|
$
|
-
|
|
Total
|
|
|
$
|
69,889
|
|
|
$
|
-
|
|
Note 7 - Statutory Reserve
The laws and regulations of the PRC require that before a foreign invested enterprise can legally distribute profits, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations, in proportions determined at the discretion of the board of directors, to the statutory reserve. The statutory reserves include the surplus reserve fund.
The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of any dividends to shareholders. The remaining reserve to fulfill the 50% registered capital requirement amounted to $795,027 and $795,027 as of December 31, 2010 and 2009, respectively.
The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 50% of the registered capital.
Operating lease commitments
No.
|
Lessor
|
Term
|
Rent per year
|
Rent per year
|
Description
|
Company
|
|
|
|
RMB
|
US$
|
|
|
1
|
Huang Zhen
|
January 1, 2007 -
December 31, 2010
|
768,000
|
113,448
|
Used as warehouse
|
GDGY
|
2
|
Tangxia Fifteenth Joint-Stock Cooperative, Tangxia Street, Tianhe District, Guangzhou
|
May 1, 2010 - April 30, 2011
|
377,400
|
55,749
|
Used as warehouse
|
GDGY
|
Guangzhou Dongfanghong Pharmaceutical Co., Ltd. (“Dongfanghong”) and Guangzhou Jointown Pharmaceutical Co., Ltd. (“Jointown”) accounted for approximately 23.6% and 12.9% of the Company’s purchases for the year ended December 31, 2010, respectively; Dongfanghong and Jointown accounted for approximately 22.9% and 12.3% of the Company’s purchases for the year ended December 31, 2009, respectively.
Dongfanghong and Jointown accounted for approximately 26.9% and 12.9% of the Company’s outstanding accounts payable as of December 31, 2010, respectively. Dongfanghong and Jointown accounted for approximately 26.8% and 12.0% of the Company’s outstanding accounts payable as of December 31, 2009, respectively.
Guangdong Guo Yao
Pharmaceutical Franchises Co., Ltd.
Tiandong Drugstore accounted for approximately 14.3% of the Company’s outstanding accounts receivable as of December 31, 2010. Guangdong Guo Yao
Pharmaceutical Franchises Co., Ltd.
Tiandong Drugstore and Guangdong Guo Yao
Pharmaceutical Franchises Co., Ltd.
Jinzhong Drugstore accounted for approximately 20.7% and 13.5% of the Company’s outstanding accounts receivable as of December 31, 2009, respectively.
Note 10 - Segment Reporting
|
The Company uses the management approach model for segment reporting. The management approach model is based on how
management organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management disaggregates a company.
The Company’s principal businesses are pharmaceutical products distribution and drugstore management. Based on the above model and the various operation activities, the Company has two reportable segments as follows:
·
|
Distribution
–
the sale of pharmaceutical and healthcare products to drugstores. All sales were sold to customers in the PRC;
|
·
|
Management
–
the management of chain drugstores.
|
For the Twelve Months ended December 31, 2010
|
USD
|
|
Distribution
|
Management
|
Total
|
|
Revenue
|
|
43,884,035
|
1,495,157
|
45,379,191
|
|
Net income
|
|
3,755,456
|
1,121,367
|
4,876,823
|
|
Total assets
|
|
6,830,388
|
-
|
6,830,388
|
|
|
|
|
|
|
|
For the Twelve Months ended December 31, 2009
|
USD
|
|
Distribution
|
Management
|
Total
|
|
Revenue
|
|
36,431,960
|
1,397,545
|
37,829,506
|
|
Net income
|
|
2,835,322
|
1,048,159
|
3,883,480
|
|
Total assets
|
|
7,068,832
|
-
|
7,068,832
|
|
Note 11 - Subsequent Event
|
The Company has evaluated all events or transactions that occurred from January 1, 2011 through the date of this filing with the SEC. We have listed the material recognizable subsequent events during this period as below:
On August 1, 2011, each of the shareholders of Pacific Asia (each a “Seller” and collectively the “Sellers”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Global Pharm Holdings Group, Inc. ("Global Pharm"). Pursuant to the Acquisition Agreement, the Sellers agreed to sell and Global Pharm agreed to purchase the aggregate of 50,000 ordinary shares (“Sale Shares”) in Pacific Asia, representing the entire issued share capital of Pacific Asia. The consideration for the Sale Shares is $42,000,000, to be paid in full by Global Pharm by issuing the Consideration Shares (as defined under the Acquisition Agreement) to the Sellers within 90 days after the Closing Date (as defined under the Acquisition Agreement). The number of the Consideration Shares to be issued to the Sellers shall be equal to $42,000,000 divided by the fair market value of Global Pharm’s issued and outstanding common stock as at the Closing Date, as determined by a third-party valuer selected by Global Pharm at its discretion. The fair value at the Closing Date as determined by an independent third-party appraiser was $4.52 per share and the Company on September 9, 2011, issued 9,292,035 shares of its common stock to the former shareholders of Pacific Asia as payment in full of the consideration. Under the Acquisition Agreement, 90% of the total shares to be issued will be issued to the original stockholders of Pacific Asia within 90 days after the date of the Acquisition Agreement and the remaining 10% to be pledged to Global Pharm. The pledged shares shall be transferred to the original shareholders of Pacific Asia if Pacific Asia achieves certain revenue targets for 2011.
Effective on July 11, 2011, Hairui Xiexin entered into series of contractual arrangements with GDGY and its shareholders, pursuant to which Hairui Xiexin acts as the management company and operation trustee for GDGY and GDGY conducts the principal operations of the business. The contractual agreements effectively transferred the preponderance of the economic benefits of GDGY over to Hairui Xiexin, and Hairui Xiexin assumed effective control and management over GDGY. With the completion of the acquisition, GDGY is indirectly managed by Rich Fortune and ultimately by Pacific Asia.
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD.
CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2011
CONTENTS
|
|
Consolidated Financial Statements (unaudited)
|
|
|
|
Consolidated
Balance Sheets
|
F16
|
|
|
Consolidated
Statements of Income and Comprehensive Income
|
F17
|
|
|
Consolidated
Statements of Cash Flows
|
F18
|
|
|
Notes to
Consolidated
Financial Statements
|
F19 - F25
|
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
CONSOLIDATED BALANCE SHEETS
|
|
As of June 30, 2011
|
|
|
As of
|
|
|
|
(Unaudited)
|
|
|
December 31, 2010
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,156,781
|
|
|
$
|
2,239,249
|
|
Accounts receivable
|
|
|
1,446,062
|
|
|
|
765,480
|
|
Other receivables
|
|
|
18,324
|
|
|
|
5,005
|
|
Due from related party
|
|
|
-
|
|
|
|
69,889
|
|
Inventories
|
|
|
1,917,122
|
|
|
|
3,731,882
|
|
Total current assets
|
|
|
9,538,289
|
|
|
|
6,811,505
|
|
Property and equipment - net
|
|
|
16,706
|
|
|
|
18,883
|
|
Total assets
|
|
$
|
9,554,995
|
|
|
$
|
6,830,388
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,062,375
|
|
|
|
3,740,671
|
|
Income taxes payable
|
|
|
529,634
|
|
|
|
414,331
|
|
Other taxes payable
|
|
|
162,301
|
|
|
|
146,937
|
|
Due to related party
|
|
|
62,324
|
|
|
|
-
|
|
Other accrued liabilities
|
|
|
66,868
|
|
|
|
60,266
|
|
Total current liabilities
|
|
|
4,883,502
|
|
|
|
4,362,205
|
|
Total liabilities
|
|
$
|
4,883,502
|
|
|
$
|
4,362,205
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
Common stock
|
|
|
50,000
|
|
|
|
50,000
|
|
Statutory surplus reserves
|
|
|
795,027
|
|
|
|
795,027
|
|
Additional paid-in capital
|
|
|
1,430,943
|
|
|
|
1,430,943
|
|
Retained earnings
|
|
|
2,132,232
|
|
|
|
-
|
|
Accumulated other comprehensive income
|
|
|
263,291
|
|
|
|
192,213
|
|
Total shareholders' equity
|
|
|
4,671,493
|
|
|
|
2,468,183
|
|
Total liabilities and shareholders' equity
|
|
$
|
9,554,995
|
|
|
$
|
6,830,388
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Six months ended June 30
|
|
|
|
2011
|
|
|
2010
|
|
Revenue
|
|
$
|
26,837,593
|
|
|
$
|
21,998,507
|
|
Cost of goods sold
|
|
|
22,572,917
|
|
|
|
18,515,317
|
|
Gross profit
|
|
|
4,264,676
|
|
|
|
3,483,190
|
|
Expenses:
|
|
|
|
|
|
|
Operating expenses
|
|
|
146,333
|
|
|
|
165,982
|
|
General and administrative
|
|
|
174,466
|
|
|
|
124,713
|
|
Income from operations
|
|
|
3,943,877
|
|
|
|
3,192,495
|
|
Other expense / (income)
|
|
|
|
|
|
|
Interest (income)
|
|
|
(5,943
|
)
|
|
|
(3,975
|
)
|
Miscellaneous expense
|
|
|
60
|
|
|
|
13,321
|
|
Income before income taxes
|
|
|
3,949,760
|
|
|
|
3,183,149
|
|
Provision for income taxes
|
|
|
992,113
|
|
|
|
799,118
|
|
Net income
|
|
$
|
2,957,647
|
|
|
$
|
2,384,031
|
|
Other comprehensive income
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
71,078
|
|
|
|
(5,345
|
)
|
Total comprehensive income
|
|
$
|
3,028,725
|
|
|
$
|
2,378,686
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30,
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net Income
|
|
$
|
2,957,647
|
|
|
$
|
2,384,031
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
|
4,322
|
|
|
|
17,549
|
|
Loss on disposal of fixed assets
|
|
-
|
|
|
|
11,504
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(657,615
|
)
|
|
|
(185,955
|
)
|
Other receivables
|
|
|
(13,066
|
)
|
|
|
4,971
|
|
Inventories
|
|
|
1,866,764
|
|
|
|
(341,013
|
)
|
Accounts payable and other accrued liabilities
|
|
|
249,912
|
|
|
|
927,184
|
|
Income taxes payable
|
|
|
105,828
|
|
|
|
94,798
|
|
Other taxes payable
|
|
|
12,302
|
|
|
|
(14,404
|
)
|
Due to related parties
|
|
|
62,331
|
|
|
|
-
|
|
Net cash provided by operating activities
|
|
|
4,588,425
|
|
|
|
2,898,665
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(1,800
|
)
|
|
|
-
|
|
Proceeds on sale of property, plant and equipment
|
|
-
|
|
|
|
87,877
|
|
Net cash provided by / (used in) investing activities
|
|
|
(1,800
|
)
|
|
|
87,877
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Dividend paid to the former shareholders
|
|
|
(755,526
|
)
|
|
|
(1,952,534
|
)
|
Net cash used in financing Activities
|
|
|
(755,526
|
)
|
|
|
(1,952,534
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
3,831,099
|
|
|
|
1,034,008
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
86,433
|
|
|
|
9,668
|
|
Cash and cash equivalent - beginning of year
|
|
|
2,239,249
|
|
|
|
2,423,775
|
|
Cash and cash equivalent - end of year
|
|
$
|
6,156,781
|
|
|
$
|
3,455,947
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
876,811
|
|
|
$
|
705,398
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
PACIFIC ASIA PHARM INVESTMENT GROUP CO., LTD
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
Note 1 – Business and Organization
Pacific Asia Pharm Investment Group Co., Limited (“Pacific Asia” or the “Company”) was incorporated in the British Virgin Islands on April 8, 2010. It owns the 100% equity interest of Hong Kong Rich Fortune Chain Drugstores Assets Management Co., Ltd. (“Rich Fortune”), a Hong Kong holding company, which was incorporated on January 12, 2009 under the laws of Hong Kong and owns the 100% equity interest of Guangzhou Hairui Xiexin Investment Consulting Co., Ltd. (“Hairui Xiexin”). Hairui Xiexin was incorporated on June 3, 2011 under the laws of the People’s Republic of China (the “PRC”).
Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. (“GDGY”), established on June 6, 2001 in Guangzhou City, the capital city of Guangdong Province, under the laws of the PRC, is a company mainly engaged in the business of managing its chain drugstores, and supplying products to its chain drugstores and franchised drugstores in Guangdong Province, PRC.
Note 2 -
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). In the opinion of management, the accompanying balance sheets, and statements of income and comprehensive income, shareholders’ equity and cash flows include all adjustments, consisting only of normal recurring items.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements reflect the adjustments considered necessary for a fair presentation of the Company’s results as of December 31, 2010 and 2009, and for the periods then ended.
The consolidated financial statements include the accounts of Pacific Asia and its subsidiaries, Rich Fortune and Hairui Xiexin, and the VIE, GDGY.
Translation Adjustment
As of June 30, 2011 and 2010, the accounts of the Company were maintained in Renminbi (“RMB”). Such financial statements were translated into United States Dollars (“USD”) in accordance with the Foreign Currency Matters Topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC 830”), with the RMB as the functional currency. According to ASC 830, all assets and liabilities are translated at the current exchange rate, shareholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB ASC (“ASC 220”), as a component of shareholders’ equity. Transaction gains and losses are reflected in the income statement.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Comprehensive Income
The Company follows ASC 220. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
There were no items of this nature during the periods ended June 30, 2011 and 2010.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in banks and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition.
Accounts Receivable
The Company records accounts receivable, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a quarterly basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer's historical payment history, its current credit-worthiness and current economic trends. The amount of the provision, if any, is recognized in the statement of operations within "General and administrative expenses." Accounts are written off after exhaustive efforts at collection. There are no allowances for doubtful accounts as of June 30, 2011 and 2010.
Inventories
Inventories are stated at the lower of cost (determined on a weighted-average basis) or market value. Work-in-progress is composed of direct materials, direct labor, manufacturing overhead and an attributable portion of land lease cost that has been capitalized as a component of inventory. The capitalized land lease cost will be recorded in cost of goods sold at such time the goods are sold. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates and reflected in cost of sales.
Long-Lived Assets
Effective January 1, 2002, the Company adopted the Property, Plant and Equipment Topic of the FASB ASC (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, management of the Company believes that, as of June 30, 2011 and 2010, there were no impairments of its long-lived assets.
Lease Obligations
All non-cancellable leases with an initial term more than one year are categorized as either capital leases or operating leases. Assets recorded under capital leases are amortized according to the methods employed for property and equipment or over the term of the related lease, if shorter.
Revenue Recognition
The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin 104. Sales revenue is recognized when all of the following have occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed or determinable and (iv) the ability to collect is reasonably assured. These criteria are generally satisfied at the time of shipment when risk of loss and title passes to the customer. Revenues are recorded net of value-added taxes.
Income Taxes
The Company is subject to the Income Tax Law of the PRC. Income taxes are accounted for under FASB ASC-740 Income Taxes (“ASC 740”). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and tax loss carry forwards. Any deferred tax assets and liabilities would be measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The statutory rate under the laws of the PRC is 25%. The Company’s herbal pieces processing and extraction business is subjected to zero income taxes.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited. As of June 30, 2011 and 2010, there was no allowance for uncollectible accounts as previously discussed.
Recent Accounting Pronouncements
In January 2010, FASB issued ASU No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and are to be applied on a retrospective basis. The Company’s adoption of this ASU did not have a material impact on its consolidated statements.
In January 2010, FASB issued ASU No. 2010-02, Accounting and Reporting for Decreases in Ownership of a Subsidiary - a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts accounting standards regarding non-controlling interests. If an entity has previously adopted the non-controlling interests accounting standards as of the date the amendments in this update are included in the ASU, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted non-controlling interests accounting standards. The adoption of this ASU did not have a material impact on its statements.
In January 2010, FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than as one net number).The update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. As ASU 2010-06 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its consolidated financial statements.
In April 2010, FASB issued ASU 2010-13, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. It addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB ASC Topic 718, Compensation—Stock Compensation, was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments will be effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. The Company does not expect the adoption of ASU 2010-13 to have a significant impact on its consolidated financial statements.
In December 2010, FASB issued ASU 2010-28 which amends “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual testes if an event occurs or circumstances changes that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010- 28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements.
In December 2010, FASB issued ASU 2010-29 which addressed diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the adoption of this ASU will have an impact on its future business combinations.
VIE
To satisfy PRC laws and regulations, the Company conducts distribution to drugstores in the PRC through its VIE, GDGY, in which the Company does not own equity interest. The Company consolidates GDGY, of which the Company is the primary beneficiary, in its consolidated financial statements.
GDGY, the consolidated VIE, was funded by its shareholders, Guangdong Guo Yao Pharmaceutical Co., Ltd and Weijun Peng. Under contractual agreements with Hairui Xiexin, the 100% owned subsidiary of Pacific Asia, the shareholders of GDGY are required to transfer their ownership in GDGY to Hairui Xiexin or designees of Hairui Xiexin, if permitted by PRC laws and regulations. All voting rights of GDGY are assigned to Hairui Xiexin, and Hairui Xiexin has the right to designate all directors and senior management personnel of GDGY, and also has the obligation to absorb losses of GDGY. The shareholders of GDGY have pledged their shares in GDGY as collateral for the interests of Hairui Xiexin in GDGY and Hairui Xiexin’s right to acquire GDGY. In addition, under the contractual arrangements, Hairui Xiexin has the power to direct activities of GDGY, and has full right to control and use the assets of GDGY. As of June 30, 2011, the total assets of GDGY were $9.5 million, mainly comprising cash and cash equivalents, accounts receivable and inventories. As of June 30, 2011, the total liabilities of GDGY were $4.8 million, mainly comprising accounts payables and accrued liabilities to suppliers and agents. These balances are reflected in Pacific Asia’s consolidated financial statements with intercompany transactions eliminated.
As GDGY is incorporated as a limited liability company under the laws of the PRC, its creditors do not have recourse to the general credit of the Company for any of the liabilities of GDGY, which consisted of accounts payable of $4.1 million, tax payable of $0.7 million, and other accrued liabilities of $750,000, totaling $31.2 million. Currently there is no contractual arrangement that could require the Company to provide additional financial support to the GDGY. As the Company is conducting distribution to drugstores in the PRC through GDGY, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
Note 3 - Property, Plant and Equipment
As of June 30, 2011 and December 31, 2010, Property, Plant & Equipment consist of the following:
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
Office equipment
|
|
$
|
40,685
|
|
|
$
|
38,107
|
|
Transportation equipment
|
|
|
28,452
|
|
|
|
27,898
|
|
Less: Accumulated depreciation and amortization
|
|
|
(52,431
|
)
|
|
|
(47,122
|
)
|
Property, plant and equipment, net
|
|
$
|
16,706
|
|
|
$
|
18,883
|
|
Depreciation expenses totaled $4,373 and $22,240 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively.
Note 4 - Income and Other Taxes Payable
Income and other taxes payable consist of the following:
|
|
Ended June 30,
|
|
|
Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Income tax payable
|
|
$
|
529,634
|
|
|
$
|
414,331
|
|
Value-added tax payable
|
|
|
143,261
|
|
|
|
132,523
|
|
City construction tax payable
|
|
|
10,541
|
|
|
|
9,544
|
|
Stamp duty payable
|
|
|
1,172
|
|
|
|
1,055
|
|
Business tax payable
|
|
|
7,327
|
|
|
|
3,815
|
|
Total other tax payable
|
|
|
162,301
|
|
|
|
146,937
|
|
Income and Other Tax Payable
|
|
$
|
691,935
|
|
|
$
|
561,268
|
|
Note 5 - Related Party Transactions
|
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
The following table sets forth the amounts due with related parties as of June 30, 2011 and December 31, 2010.
Due from related party
|
|
|
Ended June 30,
|
|
|
Ended December 31,
|
|
Related Party
|
Relationship
|
|
2011
|
|
|
2010
|
|
Yunlu Yin
|
Chairman, CEO and
Director of Global Pharm
Holdings Group, Inc.
|
|
$
|
-
|
|
|
$
|
69,889
|
|
Total
|
|
|
$
|
-
|
|
|
$
|
69,889
|
|
Due to related party
|
|
|
Ended June 30,
|
|
|
Ended December 31,
|
|
Related Party
|
Relationship
|
|
2011
|
|
|
2010
|
|
Yunlu Yin
|
Chairman, CEO and
Director of Global Pharm
Holdings Group, Inc.
|
|
$
|
62,324
|
|
|
$
|
-
|
|
Total
|
|
|
$
|
62,324
|
|
|
$
|
-
|
|
The amounts due to related parties are unsecured, non-interest bearing and payable on demand. The Company anticipates paying the remaining balance due to Mr. Yin in 2012.
Note 6 - Statutory Reserve
|
The laws and regulations of the PRC require that before a foreign invested enterprise can legally distribute profits, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations, in proportions determined at the discretion of the board of directors, to the statutory reserve. The statutory reserves include the surplus reserve fund.
The Company is required to transfer 10% of its net income, as determined in accordance with PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company's PRC subsidiaries registered capital. The transfer to this reserve must be made before distribution of any dividends to shareholders. Transfers to the statutory surplus reserve fund were nil for the six months ended June 30, 2011 and 2010. As of June 30, 2011, the Company has fulfilled the reserve requirement.
The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 50% of the registered capital of the Company’s PRC subsidiaries.
Guangzhou Dongfanghong Pharmaceutical Co., Ltd. (“Dongfanghong”) and Guangzhou Jointown Pharmaceutical Co., Ltd. (“Jointown”) accounted for approximately 14.0% and 13.6% of the Company’s purchases for the six months ended June 30, 2011, respectively; Dongfanghong and Jointown accounted for approximately 23.6% and 12.9% of the Company’s purchases for the six months ended June 30, 2010, respectively.
Dongfanghong and Jointown accounted for approximately 16.3% and 11.9% of the Company’s outstanding accounts payable as of June 30, 2011, respectively. Dongfanghong and Jointown accounted for approximately 26.4% and 12.3% of the Company’s outstanding accounts payable as of June 30, 2010, respectively.
Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. Tiandong Drugstore and
Guangdong Guo Yao
Pharmaceutical Franchises Co., Ltd. Jinzhong Drugstore accounted for approximately 20.1% and 14.7% of the Company’s outstanding accounts receivable as of June 30, 2011, respectively. Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. Tiandong Drugstore and
Guangdong Guo Yao
Pharmaceutical Franchises Co., Ltd. Jinzhong Drugstore accounted for approximately 20.0% and 15.9% of the Company’s outstanding accounts receivable as of June 30, 2010, respectively.
Note 8 - Segment Reporting
|
The Company uses the management approach model for segment reporting. The management approach model is based on how
management organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management disaggregates a company.
The Company’s principal businesses are pharmaceutical products distribution and drugstore management. Based on the above model and the various operation activities, the Company has two reportable segments as follows:
·
|
Distribution
–
the sale of pharmaceutical and healthcare products to drugstores. All sales were sold to customers in the PRC;
|
·
|
Management
–
the management of chain drugstores.
|
For the Six Months ended June 30, 2010 (unaudited)
|
|
US $
|
|
Distribution
|
|
|
Management
|
|
|
Total
|
|
Revenue
|
|
|
21,217,982
|
|
|
|
780,525
|
|
|
|
21,998,507
|
|
Net income
|
|
|
1,798,637
|
|
|
|
585,394
|
|
|
|
2,384,031
|
|
Total assets
|
|
|
8,490,512
|
|
|
|
-
|
|
|
|
8,490,512
|
|
For the Six Months ended June 30, 2011 (unaudited)
|
|
US $
|
|
Distribution
|
|
|
Management
|
|
|
BVI & Hong Kong
|
|
|
Total
|
|
Revenue
|
|
|
25,961,567
|
|
|
|
876,026
|
|
|
|
-
|
|
|
|
26,837,593
|
|
Net income
|
|
|
2,319,321
|
|
|
|
657,019
|
|
|
|
(18,693
|
)
|
|
|
2,957,647
|
|
Total assets
|
|
|
9,511,363
|
|
|
|
-
|
|
|
|
43,43632
|
|
|
|
9,554,995
|
|
Note 9 Subsequent Event
The Company has evaluated all events or transactions that occurred from January 1, 2011 through the date of this filing with the SEC. We have listed the material recognizable subsequent events during this period as below:
On August 1, 2011, each of the shareholders of Pacific Asia (each a “Seller” and collectively the “Sellers”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Global Pharm Holdings Group, Inc. ("Global Pharm"). Pursuant to the Acquisition Agreement, the Sellers agreed to sell and Global Pharm agreed to purchase the aggregate of 50,000 ordinary shares (“Sale Shares”) in Pacific Asia, representing the entire issued share capital of Pacific Asia. The consideration for the Sale Shares is $42,000,000, to be paid in full by Global Pharm by issuing the Consideration Shares (as defined under the Acquisition Agreement) to the Sellers within 90 days after the Closing Date (as defined under the Acquisition Agreement). The number of the Consideration Shares to be issued to the Sellers shall be equal to $42,000,000 divided by the fair market value of Global Pharm’s issued and outstanding common stock as at the Closing Date, as determined by a third-party valuer selected by Global Pharm at its discretion. The fair value at the Closing Date as determined by an independent third-party appraiser was $4.52 per share and the Company on September 9, 2011, issued 9,292,035 shares of its common stock to the former shareholders of Pacific Asia as payment in full of the consideration. Under the Acquisition Agreement, 90% of the total shares to be issued will be issued to the original stockholders of Pacific Asia within 90 days after the date of the Acquisition Agreement and the remaining 10% to be pledged to Global Pharm. The pledged shares shall be transferred to the original shareholders of Pacific Asia if Pacific Asia achieves certain revenue targets for 2011.
Effective on July 11, 2011, Hairui Xiexin entered into series of contractual arrangements with GDGY and its shareholders, pursuant to which Hairui Xiexin acts as the management company and operation trustee for GDGY and GDGY conducts the principal operations of the business. The contractual agreements effectively transferred the preponderance of the economic benefits of GDGY over to Hairui Xiexin, and Hairui Xiexin assumed effective control and management over GDGY. With the completion of the acquisition, GDGY is indirectly managed by the Company.
Unaudited Pro Forma Condensed Balance Sheets
As of December 31, 2010 and June 30, 2011
|
|
Pacific Asia Pharm
|
|
|
Global Pharm
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Group Co., Ltd
|
|
|
Holdings Group. Inc
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Balance Sheets
|
|
|
Balance Sheets
|
|
|
|
|
|
Adjustments
|
|
|
Consolidated Balance Sheets
|
|
|
|
12/31/10
|
|
|
06/30/11
|
|
|
12/31/10
|
|
|
06/30/11
|
|
|
AJE #
|
|
|
12/31/10
|
|
|
06/30/11
|
|
|
12/31/10
|
|
|
06/30/11
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,239,249
|
|
|
$
|
6,156,781
|
|
|
$
|
4,271,498
|
|
|
$
|
9,144,834
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,510,747
|
|
|
$
|
15,301,615
|
|
Accounts receivable
|
|
|
765,480
|
|
|
|
1,446,062
|
|
|
|
19,771,619
|
|
|
|
24,918,594
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,537,099
|
|
|
|
26,364,656
|
|
Inventories
|
|
|
3,731,882
|
|
|
|
1,917,122
|
|
|
|
16,058,760
|
|
|
|
18,980,396
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,790,642
|
|
|
|
20,897,518
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,538,251
|
|
|
|
1,213,714
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,538,251
|
|
|
|
1,213,714
|
|
Due from related party
|
|
|
69,889
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,889
|
|
|
|
-
|
|
Other current assets
|
|
|
5,005
|
|
|
|
18,324
|
|
|
|
1,326,660
|
|
|
|
1,978,407
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,331,665
|
|
|
|
1,996,731
|
|
Total current assets
|
|
|
6,811,505
|
|
|
|
9,538,289
|
|
|
|
42,966,788
|
|
|
|
56,235,945
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,778,293
|
|
|
|
65,774,234
|
|
Property, plant and equipment, net
|
|
|
18,883
|
|
|
|
16,706
|
|
|
|
210,665
|
|
|
|
676,529
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
229,548
|
|
|
|
693,235
|
|
Investment in Pacific Asia
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
297,874
|
|
|
2
|
|
|
|
28,823,273
|
|
|
|
28,823,273
|
|
|
|
28,823,273
|
|
|
|
29,121,147
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374,143
|
|
|
2
|
|
|
|
10,219,044
|
|
|
|
10,219,044
|
|
|
|
10,219,044
|
|
|
|
10,593,187
|
|
Total assets
|
|
|
6,830,388
|
|
|
|
9,554,995
|
|
|
|
43,177,453
|
|
|
|
57,584,491
|
|
|
|
|
|
|
39,042,317
|
|
|
|
39,042,317
|
|
|
|
89,050,158
|
|
|
|
106,181,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term loan
|
|
|
-
|
|
|
|
-
|
|
|
|
1,972,150
|
|
|
|
464,145
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,972,150
|
|
|
|
464,145
|
|
Bank acceptance
|
|
|
-
|
|
|
|
-
|
|
|
|
21,212
|
|
|
|
1,528,560
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,212
|
|
|
|
1,528,560
|
|
Accounts payable and accrued expenses
|
|
|
3,800,937
|
|
|
|
4,129,243
|
|
|
|
20,944,923
|
|
|
|
22,023,372
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,745,860
|
|
|
|
26,152,615
|
|
Income and other taxes payable
|
|
|
561,268
|
|
|
|
691,935
|
|
|
|
1,728,499
|
|
|
|
2,076,102
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,289,767
|
|
|
|
2,768,037
|
|
Due to related parties
|
|
|
-
|
|
|
|
62,324
|
|
|
|
882,505
|
|
|
|
3,813,329
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
882,505
|
|
|
|
3,875,653
|
|
Total current liabilities
|
|
|
4,362,205
|
|
|
|
4,883,502
|
|
|
|
25,549,289
|
|
|
|
29,905,508
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,911,494
|
|
|
|
34,789,010
|
|
Total liabilities
|
|
|
4,362,205
|
|
|
|
4,883,502
|
|
|
|
25,549,289
|
|
|
|
29,905,508
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,911,494
|
|
|
|
34,789,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value, $0.001 per share, 100,000,000 sharesauthorized; 26,000,000 shares issued and outstanding as of June 30, 2011
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
26,000
|
|
|
|
26,000
|
|
|
1,2
|
|
|
|
(40,708
|
)
|
|
|
(40,708
|
)
|
|
|
35,292
|
|
|
|
35,292
|
|
Paid in capital
|
|
|
1,430,943
|
|
|
|
1,430,943
|
|
|
|
-
|
|
|
|
-
|
|
|
2
|
|
|
|
(1,430,943
|
)
|
|
|
(1,430,943
|
)
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
-
|
|
|
|
-
|
|
|
|
9,200,623
|
|
|
|
9,200,623
|
|
|
1,2
|
|
|
|
41,501,208
|
|
|
|
43,704,518
|
|
|
|
50,701,831
|
|
|
|
52,905,141
|
|
Statutory surplus reserves
|
|
|
795,027
|
|
|
|
795,027
|
|
|
|
1,310,701
|
|
|
|
1,310,701
|
|
|
2
|
|
|
|
(795,027
|
)
|
|
|
(795,027
|
)
|
|
|
1,310,701
|
|
|
|
1,310,701
|
|
Retained earnings
|
|
|
-
|
|
|
|
2,132,232
|
|
|
|
6,546,406
|
|
|
|
15,764,962
|
|
|
2
|
|
|
|
-
|
|
|
|
(2,132,232
|
)
|
|
|
6,546,406
|
|
|
|
15,764,962
|
|
Accumulated other comprehensive income
|
|
|
192,213
|
|
|
|
263,291
|
|
|
|
544,434
|
|
|
|
1,032,115
|
|
|
2
|
|
|
|
(192,213
|
)
|
|
|
(263,291
|
)
|
|
|
544,434
|
|
|
|
1,032,115
|
|
Total shareholders' equity
|
|
|
2,468,183
|
|
|
|
4,671,493
|
|
|
|
17,628,164
|
|
|
|
27,334,401
|
|
|
|
|
|
|
39,042,317
|
|
|
|
39,042,317
|
|
|
|
59,138,664
|
|
|
|
71,048,211
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
344,582
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
344,582
|
|
Total stockholders' equity
|
|
|
2,468,183
|
|
|
|
4,671,493
|
|
|
|
17,628,164
|
|
|
|
27,678,983
|
|
|
|
|
|
|
39,042,317
|
|
|
|
39,042,317
|
|
|
|
59,138,664
|
|
|
|
71,392,793
|
|
Total liabilities and stockholders' equity
|
|
$
|
6,830,388
|
|
|
$
|
9,554,995
|
|
|
$
|
43,177,453
|
|
|
$
|
57,584,491
|
|
|
|
|
|
$
|
39,042,317
|
|
|
$
|
39,042,317
|
|
|
$
|
89,050,158
|
|
|
$
|
106,181,803
|
|
|
|
2010 AJE
|
|
|
2011 AJE
|
|
AJE 1
|
|
Debit
|
|
|
Credit
|
|
|
Debit
|
|
|
Credit
|
|
Investment in Pacific Asia
|
|
|
42,000,000
|
|
|
|
|
|
|
42,000,000
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
9,292
|
|
|
|
|
|
|
|
9,292
|
|
Additional paid in capital
|
|
|
|
|
|
|
41,990,708
|
|
|
|
|
|
|
|
41,990,708
|
|
This pro forma adjustment reflects the payment by the Company of the consideration for the Acquisition as follows:
|
|
The consideration for the Sale Shares is $42,000,000, to be paid in full by Global Pharm by issuing the Consideration Shares (as defined under the Acquisition Agreement) to the Sellers within 90 days after the Closing Date (as defined under the Acquisition Agreement). The fair value at the Closing Date as determined by an independent third-party appraiser was $4.52 per share and Global Pharm issued 9,292,035 shares of its common stock to the Sellers as payment in full of the consideration.
|
|
|
2010 AJE
|
|
|
2011 AJE
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|
AJE 2
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|
Debit
|
|
|
Credit
|
|
|
Debit
|
|
|
Credit
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|
Investment in Pacific Asia
|
|
|
|
|
|
42,000,000
|
|
|
|
|
|
|
42,000,000
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|
Additional paid in capital
|
|
|
489,500
|
|
|
|
|
|
|
|
|
|
|
1,713,810
|
|
Retained earning
|
|
|
-
|
|
|
|
|
|
|
|
2,132,232
|
|
|
|
|
|
Common stock
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
Paid in capital
|
|
|
1,430,943
|
|
|
|
|
|
|
|
1,430,943
|
|
|
|
|
|
Statutory surplus reserves
|
|
|
795,027
|
|
|
|
|
|
|
|
795,027
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
192,213
|
|
|
|
|
|
|
|
263,291
|
|
|
|
|
|
Trade name
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|
|
8,747,228
|
|
|
|
|
|
|
|
8,747,228
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|
|
|
|
|
Non-compete agreement
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|
|
723,990
|
|
|
|
|
|
|
|
723,990
|
|
|
|
|
|
Drugstore chain franchise
|
|
|
19,352,055
|
|
|
|
|
|
|
|
19,352,055
|
|
|
|
|
|
Goodwill
|
|
|
10,219,044
|
|
|
|
|
|
|
|
10,219,044
|
|
|
|
|
|
To record purchase price allocation and eliminate investment
|
|
Unaudited Pro Forma Condensed Statements of Income
For the Year ended December 31, 2009 and 2010 and the Six Months Ended June 30, 2011
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|
Pacific Asia Pharm
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|
Global Pharm
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|
|
|
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|
|
|
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|
|
|
|
|
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|
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|
|
|
|
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|
Investment Group Co., Ltd
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|
Holdings Group. Inc
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|
|
|
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|
Pro Forma
|
|
Pro Forma
|
|
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|
Income statements
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|
Income statements
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|
|
|
|
|
Adjustments
|
|
Consolidated Income Statements
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|
|
|
For the twelve months ended December 31, 2009
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|
|
For the twelve months ended December 31, 2010
|
|
|
For the six months ended June 30, 2011
|
|
For the twelve months ended December 31, 2009
|
|
|
For the twelve months ended December 31, 2010
|
|
|
For the six months ended June 30, 2011
|
|
|
AJE
|
|
|
For the twelve months ended December 31, 2009
|
|
|
For the twelve months ended December 31, 2010
|
|
|
For the six months ended June 30, 2011
|
|
For the twelve months ended December 31, 2009
|
|
|
For the twelve months ended December 31, 2010
|
|
|
For the six months ended June 30, 2011
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|
Revenue
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|
|
37,829,506
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|
|
|
45,379,191
|
|
|
|
26,837,593
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|
|
|
86,784,002
|
|
|
|
140,342,778
|
|
|
|
87,490,082
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,613,508
|
|
|
|
185,721,969
|
|
|
|
114,327,675
|
|
Income from continuing operations
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|
|
5,175,030
|
|
|
|
6,513,929
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|
|
|
3,943,877
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|
|
|
14,170,361
|
|
|
|
15,919,038
|
|
|
|
12,138,128
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|
|
1
|
|
|
|
(1,149,529
|
)
|
|
|
(1,149,529
|
)
|
|
|
(594,955
|
)
|
|
|
18,195,862
|
|
|
|
21,283,438
|
|
|
|
15,487,050
|
|
Net income
|
|
|
3,883,480
|
|
|
|
4,876,823
|
|
|
|
2,957,647
|
|
|
|
10,901,402
|
|
|
|
11,152,142
|
|
|
|
9,217,203
|
|
|
1
|
|
|
|
(1,149,529
|
)
|
|
|
(1,149,529
|
)
|
|
|
(594,955
|
)
|
|
|
13,635,353
|
|
|
|
14,879,436
|
|
|
|
11,579,895
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|
Net income attributable to the Company
|
|
|
3,883,480
|
|
|
|
4,876,823
|
|
|
|
2,957,647
|
|
|
|
10,901,402
|
|
|
|
11,152,142
|
|
|
|
9,218,556
|
|
|
1
|
|
|
|
(1,149,529
|
)
|
|
|
(1,149,529
|
)
|
|
|
(594,955
|
)
|
|
|
13,635,353
|
|
|
|
14,879,436
|
|
|
|
11,581,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income per share
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|
$
|
77.67
|
|
|
$
|
97.54
|
|
|
$
|
59.15
|
|
|
$
|
0.57
|
|
|
$
|
0.51
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
$
|
0.48
|
|
|
$
|
0.33
|
|
Basic and diluted weighted average shares
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
19,094,000
|
|
|
|
21,780,718
|
|
|
|
26,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,386,035
|
|
|
|
31,072,753
|
|
|
|
35,292,035
|
|
AJE 1
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
Depreciation expenses
|
|
|
1,149,529
|
|
|
|
1,149,529
|
|
|
|
594,955
|
|
Accumulated depreciation expenses
|
|
|
1,149,529
|
|
|
|
1,149,529
|
|
|
|
594,955
|
|
To record the amortization expenses of intangible assets.
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma Condensed Financial Statements
Note 1 – BASIS OF PRESENTATION
On August 1, 2011, each of the shareholders of Pacific Asia (each a “Seller” and collectively the “Sellers”) entered into a Share Purchase Agreement (the “Acquisition Agreement”) with Global Pharm Holdings Group, Inc. ("Global Pharm"). Pursuant to the Acquisition Agreement, the Sellers agreed to sell and Global Pharm agreed to purchase the aggregate of 50,000 ordinary shares (“Sale Shares”) in Pacific Asia, representing the entire issued share capital of Pacific Asia. The consideration for the Sale Shares is $42,000,000, to be paid in full by Global Pharm by issuing the Consideration Shares (as defined under the Acquisition Agreement) to the Sellers within 90 days after the Closing Date (as defined under the Acquisition Agreement). The number of the Consideration Shares to be issued to the Sellers shall be equal to $42,000,000 divided by the fair market value of Global Pharm’s issued and outstanding common stock as at the Closing Date, as determined by a third-party valuer selected by Global Pharm at its discretion. The fair value at the Closing Date as determined by an independent third-party appraiser was $4.52 per share and Global Pharm on September 9, 2011, issued 9,292,035 shares of its common stock to the former shareholders of Pacific Asia as payment in full of the consideration. Under the Acquisition Agreement, 90% of the total shares to be issued will be issued to the original stockholders of Pacific Asia within 90 days after the date of the Acquisition Agreement and the remaining 10% to be pledged to Global Pharm. The pledged shares shall be transferred to the original shareholders of Pacific Asia if Pacific Asia achieves certain revenue targets for 2011.
Effective on July 11, 2011, Hairui Xiexin entered into series of contractual arrangements with Guangdong Guo Yao Pharmaceutical Franchises Co., Ltd. (“GDGY”) and its shareholders, pursuant to which Hairui Xiexin acts as the management company and operation trustee for GDGY, and GDGY conducts the principal operations of the business. The contractual agreements effectively transferred the preponderance of the economic benefits of GDGY over to Hairui Xiexin, and Hairui Xiexin assumed effective control and management over GDGY. With the completion of the acquisition, GDGY is indirectly managed by Rich Fortune and ultimately by Pacific Asia.
These pro forma condensed financial statements are prepared assuming the above transaction occurred on December 31, 2009 (as to the balance sheets) and on January 1, 2009 (as to the income statements).
Audited and unaudited financial statements of Pacific Asia and Global Pharm have been used in the preparation of these pro forma consolidated financial statements. These pro forma consolidated financial statements should be read in conjunction with the historical financial statements of Global Pharm and Pacific Asia.
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