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8-K/A - FORM 8-K/A - SEELOS THERAPEUTICS, INC.v324428_8ka.htm
EX-99.3 - EXHIBIT 99.3 - SEELOS THERAPEUTICS, INC.v324428_ex99-3.htm
EX-23.1 - EXHIBIT 23.1 - SEELOS THERAPEUTICS, INC.v324428_ex23-1.htm
EX-99.1 - EXHIBIT 99.1 - SEELOS THERAPEUTICS, INC.v324428_ex99-1.htm

 

Exhibit 99.2

 

FINESCO

 

CONSOLIDATED FINANCIAL STATEMENTS

 

For the Period ended June 30, 2012 and for the Period from May 16, 2011 to December 31, 2011 (successor period) and for the Period from January 1 to May 15, 2011 (predecessor period)

 

 

Finesco SAS Headquarters

6 Avenue du Vieil Etang

Immeuble Espace Ouest – Bâtiment B

78180 Montigny-Le-Bretonneux

 

 
 

 

SUMMARY

 

Consolidated Balance Sheet 5
Consolidated Statement of Comprehensive Income 6
Consolidated Statement of Change in Equity 7
Consolidated Cash Flow Statement 8
Notes to the Consolidated Financial Statements 9
1. Company information 9
2. Basis of preparation and adoption of IFRS 9
3. First time adoption of IFRS 11
3.1 Statement of compliance and application of IFRS 1 11
3.2 Mandatory exceptions from full retrospective application followed by Finesco 12
4. Summary of significant accounting policies 12
4.1 Principles of consolidation 12
4.2 Segment reporting 12
4.3 Fixed assets 12
4.4 Goodwill / Negative goodwill 13
4.5 Financial assets and liabilities 13
4.6 Other non-current financial assets 13
4.7 Restricted cash 13
4.8 Customer accounts receivable, net 13
4.9 Cash and cash equivalents 14
4.10 Share capital 14
4.11 Borrowings 14
4.12 Employee benefits 14
4.13 Provisions 15
4.14 Current and deferred income tax 15
4.15 Trade accounts payable 15
4.16 Discontinued operations 16
4.17 Revenue recognition 16
4.18 Other operating income and expense 17
4.19 Leases 17
5. Financial risk management 17
5.1 Financial risk factors 17
5.2 Capital management 18
5.3 Fair value estimation 18
6. Critical accounting estimates and judgments 18
7. Notes related to the Consolidated Balance Sheet 19
7.1 Fixed assets, net 19
7.2 Customer accounts receivable, net 20
7.3 Prepaid expenses and other current assets 20

 

2
 

 

7.4 Cash and cash equivalents 20
7.5 Pension benefit obligations 21
7.6 Provisions 22
7.7 Deferred income tax 23
7.8 Financial assets and liabilities by category 24
7.9 Other current liabilities 25
8. Notes related to the Consolidated Income Statement 26
8.1 Revenue 26
8.2 Expenses by nature 26
8.3 Employee salary and benefit expenses 26
8.4 Other operating income and expenses 27
8.5 Finance costs, net 27
8.6 Business combination 27
8.7 Income tax expense 27
9. Commitments and contingencies 28
9.1 Operating lease commitments 29
9.2 Contingencies 28
10. Transition to IFRS 29
11. Related party transactions 30
12. Events after the reporting period 31

 

3
 

 

Report of Independent Auditors

  

To the shareholders of Finesco SAS

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Finesco SAS and its subsidiary Scomedica SAS at June 30, 2012, December 31, 2011 (successor periods) and January 1, 2011 (predecessor period), and the results of their operations and their cash flows for the half-year period ended June 30, 2012 and the period from May 16, 2011 to December 31, 2011 (successor periods) and the period from January 1, 2011 to May 15, 2011 (predecessor period) in conformity with the International Financial Reporting Standards as issued by the IASB (International Accounting Standards Board). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying consolidated financial statements have been prepared assuming that Finesco SAS will continue as a going concern. As disclosed in Note 2 to the accompanying consolidated financial statements, Finesco SAS and its subsidiary Scomedica SAS are operating only one short-term contract with a multinational customer since July 2012, which raises substantial doubt about Finesco SAS's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. Those consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

Neuilly-sur-Seine, France, September 27, 2012

  

/s/ PricewaterhouseCoopers Audit

 

4
 

 

Consolidated Balance Sheet

 

(All amounts in’000 € unless otherwise stated)

 

      Successor   Predecessor 
   Note  June 30, 2012   December 31,
2011
   January 1, 2011 
Assets                  
Non-current assets                  
Fixed assets, net  7.1   53    48    - 
Restricted cash  7.8   255    113    - 
Other non-current financial assets  7.8   41    76    1 
Deferred tax assets  7.7   218    244    53 
       567    481    54 
Current assets                  
Customer accounts receivable  7.2, 7.8   949    722    3,965 
Prepaid expenses and other current assets  7.3   76    113    1,457 
Cash and cash equivalents  7.4, 7.8   2,027    3,202    1,173 
       3,052    4,037    6,595 
                   
Total assets      3,619    4,518    6,649 
                   
                   
Shareholders' Equity and Liabilities                  
Shareholders' Equity                  
Share capital      60    60    40 
Share premium      -    -    - 
Other consolidated reserves      -    -    - 
Retained earnings and net profit      1,177    1,159    364 
Total shareholders' equity      1,237    1,219    404 
                   
Non-current liabilities                  
Loans and borrowings  7.8   -    -    - 
Pension benefit obligations  7.5   490    380    141 
Provisions - long term      -    -    - 
Other non-current liabilities      -    -    - 
Deferred tax liabilities  7.7   -    -    - 
       490    380    141 
Current liabilities                  
Short-term borrowings  7.8   182    182    - 
Provisions - short term   7.6   56    56    56 
Trade accounts payable  7.8   362    417    1,728 
Income tax payable  7.8, 8.7   -    715    95 
Other current liabilities  7.9, 8.7   1,292    1,549    4,225 
       1,892    2,919    6,104 
                   
Total liabilities      2,382    3,299    6,245 
Total shareholders' equity and liabilities      3,619    4,518    6,649 

  

The notes on pages 9 to 32 are an integral part of these consolidated financial statements.

 

5
 

 

Consolidated Statement of Comprehensive Income

 

(All amounts in’000 € unless otherwise stated)

 

      Successor   Predecessor 
   Note  June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
Revenue  8.1   3,785    5,440    2,710 
Cost of services  8.2   (2,880)   (3,731)   (1,960)
Gross profit      905    1,709    750 
Selling, general and administrative expenses  8.2   (872)   (1,599)   (633)
Negative goodwill  8.6   -    1,309    - 
Other operating income  8.4   13    164    11 
Other operating expenses  8.4   (1)   (7)   (17)
Profit (loss) from operations      45    1,576    111 
Finance income  8.5   -    3    - 
Finance costs  8.5   (1)   -    - 
Finance costs, net      (1)   3    - 
Share of profit (loss) of associates      -         - 
Profit (loss) before income taxes      44    1,579    111 
Income tax expense  8.7   (26)   (420)   (42)
                   
Net profit (loss) for the year from continuing operations      18    1,159    69 
Discontinued operations  4.16               
Net profit (loss) for the year from discontinued operations                (108)
Net profit (loss)      18    1,159    (39)
                   
Other comprehensive income                  
Total comprehensive income (loss)      18    1,159    (39)
                   
Total comprehensive income (loss) from:                  
Continuing operations      18    1,159    69 
Discontinued operations                (108)

 

The notes on pages 9 to 32 are an integral part of these consolidated financial statements.

 

6
 

 

Consolidated Statement of Change in Equity

 

(All amounts in’000 € unless otherwise stated)

  

   Share Capital   Share premium   Other consolidated reserves   Retained earnings including net profit   Total Shareholder's equity 
Predecessor                         
Balance at January 1, 2011   40              364    404 
                          
Issuance from share capital                         
Dividends                         
Changes in scope of consolidation                         
Total comprehensive income (loss)                  (39)   (39)
Balance at May 15, 2011   40    -    -    325    365 
                          
Successor                         
Balance at May 16, 2011   1    -    -    -    1 
Creation of Finesco                       - 
Issuance from share capital   59                   59 
Dividends                       - 
Changes in scope of consolidation                       - 
Total comprehensive income (loss)                  1,159    1,159 
Balance at December 31, 2011   60    -    -    1,159    1,219 
                          
Issuance from share capital                         
Dividends                         
Changes in scope of consolidation                       - 
Total comprehensive income (loss)                  18    18 
Balance at June 30, 2012   60    -    -    1,177    1,237 

 

There are no non-controlling interests.

 

The notes on pages 9 to 32 are an integral part of these consolidated financial statements.

 

7
 

 

Consolidated Cash Flow Statement

 

(All amounts in’000 € unless otherwise stated)

 

   Successor   Predecessor 
   June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
             
Cash flow from operating activities               
Net profit (loss)   18    1,159    (39)
Adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities               
Depreciation and amortization   2    2    - 
Net increase (decrease) in provisions   110    93    146 
Gain or loss on disposals, negative goodwill   -    (1,309)   - 
Deferred taxes   26    (129)   (62)
Cash flows provided by (used in) operations before deferred tax and finance costs   156    (184)   45 
Changes in operating working capital   (1,216)   (1,056)   2,275 
Total net cash provided by (used in) operating activities   (1,060)   (1,240)   2,320 
Net cash provided by (used in) operating activities - continuing operations   (1,060)   (1,240)   3,116 
Net cash provided by (used in) operating activities - discontinued operations             (796)
                
Cash flow from investing activities               
Proceeds from disposal of discontinued operations, net of transaction costs and cash disposed   -    -    - 
Acquisition of Scomedica, net of cash acquired   -    4,398    - 
Capital expenditures   (7)   (50)   - 
Proceeds from sale of fixed assets   -    -    - 
Total net cash provided by (used in) investing activities   (7)   4,348    - 
Net cash provided by (used in) investing activities - continuing operations   (7)   4,348    - 
Net cash provided by (used in) investing activities - discontinued operations             - 
                
Cash flow from financing activities               
Dividends paid   -    -    - 
Issuance of share capital   -    59    - 
Release (deposit) of financial assets   (107)   (148)   (39)
Proceeds from short-term borrowings   -    182    - 
Repayment of short-term borrowings   -         - 
Other   (1)   -    - 
Total net cash provided by (used in) financing activities   (108)   93    (39)
Net cash provided by (used in) financing activities - continuing operations   (108)   93    (39)
Net cash provided by (used in) financing activities - discontinued operations             - 
                
Net increase (decrease) in cash and cash equivalents   (1,175)   3,201    2,281 
Cash and cash equivalents, beginning of period   3,202    1    1,173 
Cash and cash equivalents, end of period   2,027    3,202    3,454 
                
Additional information               
Interest (paid) / received   (1)   -    - 
Income tax paid   751    -    - 

 

The notes on pages 9 to 32 are an integral part of these consolidated financial statements.

 

The consolidated financial statements on pages 1 to 32 were authorized for issue by the President on September 25, 2012, and were signed on behalf.

 

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Notes to the Consolidated Financial Statements

 

(All amounts in’000 € unless otherwise stated)

 

1.Company information

 

Finesco SAS is a French holding company and owns 100% of the company Scomedica SAS. Scomedica is a healthcare contract sales and marketing company serving customers in France. Its medical sales representatives promote and market medical products to doctors’ practices.

 

2.Basis of preparation and adoption of IFRS

 

Creation of Finesco and acquisition of Scomedica

 

On March 8, 2011, the holding Finesco SAS was created by Gérard Burger, the sole shareholder, and did not have any activity during the period from March 8, 2011 to May 15, 2011. On May 16, 2011, Finesco acquired 100% of Scomedica's shares (2500 shares) for 1€ (a token price) (cf. Note 8.6 business combination). Unless the context otherwise requires, (i) “Finesco” means Finesco SAS and its consolidated subsidiary Scomedica SAS, (ii) “Scomedica” means the company Scomedica SAS standalone, and (iii) the “Acquisition” refers to the acquisition of 100% of Scomedica’s shares by Finesco SAS on May 16, 2011.

 

“Predecessor” / “Successor”

 

As consequence of the Acquisition, the term “Successor” refers to Finesco following the Acquisition. The term “Predecessor” refers to Scomedica prior to the change of control on May 16, 2011. Therefore, the “Successor periods” correspond to the period from May 16, 2011 to December 31, 2011 and to the half-year period ended June 30, 2012. The “Predecessor period” corresponds to the period from January 1, 2011 to May 15, 2011.

 

Consequently, financial statements have been divided into Successor and Predecessor periods.

 

Preparation of financial statements

 

Finesco's financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These financial statements have been prepared under the historical cost convention except for items that are required to be accounted for at fair value.

 

New standards, amendments and interpretations which have been issued by the IASB but have not yet come into effect are not expected to have a material impact on Finesco financial statements.

 

The preparation of financial statements in conformity with IFRS requires the use by management of certain critical accounting estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported periods. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 6.

 

Safeguard procedure and Management buyout of Scomedica

 

Until May 15, 2011, Scomedica was a subsidiary of Wockhardt France Holding (“Wockhardt”). Wockhardt was placed under a safeguard procedure (a procedure equivalent to “Chapter 11 procedure” in the United States) by the Versailles commercial court on October 14, 2010 including some of its subsidiaries and Scomedica to ensure the survival of the company. In the course of this procedure, M. Gérard Burger, President of Scomedica, decided to acquire Scomedica from Wockhardt in order to maintain and develop the existing medical representative business (refer below “Scomedica’s activity”). He created the holding Finesco on March 8, 2011 and conducted through Finesco a management buyout; on May 16, 2011, Finesco acquired 100% of Scomedica’s shares from Wockhardt (refer above “Creation of Finesco and acquisition of Scomedica”). In this context, members of the Scomedica management team transferred from Wockhardt group to Scomedica and an agreement was signed for Wockhardt to provide administrative support to Scomedica during a transition period.

 

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On December 2011, four managers of Scomedica, including Martine Burger (Gérard Burger’s sister), participated in a capital increase of Finesco. Consequently, as of December 31, 2011, Gérard Burger and Martine Burger hold 95% of Finesco’s share capital.

 

As part of the safeguard procedure and the sale of Scomedica’s shares to Finesco, compensation of debts and receivables between Scomedica and Wockhardt group and debt write offs from Wockhardt France Holding and its subsidiaries were agreed upon.

 

On October 20, 2011, the administrator appointed by the commercial court of Versailles allowed the settlement of all the outstanding liabilities and the Scomedica “safeguard proceedings” were terminated.

 

Scomedica’s activity

 

Historically, Scomedica has conducted business in two main areas:

 

-Medical representatives: In 2010, Scomedica held four customers contracts; one with a multinational pharmaceutical company (“multinational customer”) and the three others with laboratories owned by Wockhardt to promote medical products. The contract with the multinational customer was a shared contract with DMH, one of Wockhardt’s subsidiaries.

 

On December 31, 2010, the multinational customer cancelled the shared contract in order to exclude Wockhardt and its subsidiaries and entered in February 2011 into new multiple contracts with Scomedica. The consecutive contracts signed with the multinational customer were short-term contracts (up to 1 year) (cf. paragraph “Going Concern” below).

 

In 2011, Scomedica’s short-term contracts with two Wockhardt laboratories remained active and unchanged after the Acquisition.

 

-Direct sales to pharmacies: Until February 2011, Scomedica was a commercial agent for direct sales to pharmacies of pharmaceutical products developed by Wockhardt’s subsidiaries. This activity was divested on February 2011 (see next paragraph below).

 

Revenue recognition principles are explained in note 4.17.

 

Divestiture of the activity “direct sales to pharmacies” under the safeguard procedure

 

On February 28, 2011, Scomedica sold its direct sales to pharmacies’ activity to Niverpharm, one of Wockhardt’s subsidiaries, with retroactive effect to February, 1 2011. (cf. Note 4.16 Discontinued Operations). This line of activity was sold at 1€, a token price. The main impacts were :

 

-the transfer of related sales staff from Scomedica to Niverpharm;

 

-a transfer of cash from Scomedica to Niverpharm to compensate liabilities and commitments related to the sales staff transferred (unpaid vacations);

 

-the repayment by Niverpharm to Scomedica of February 2011 payroll expenses paid by Scomedica to sales staff transferred.

 

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Going Concern

 

The financial statements have been prepared on a going concern basis which considers the realization of assets and settlement of liabilities in the ordinary course of business. Finesco is operating under only one short-term contract with a multinational customer since July 2012, which raises substantial doubt about Finesco's ability to continue as a going concern. The ongoing operation of Finesco is dependent upon:

 

-Finesco maintaining its current activity with a multinational customer and/or Finesco gaining new business in the near future, and/or

 

-Finesco raising additional funding from shareholders or other parties.

 

Finesco’s President is in continuous business development negotiations to attract new contracts and has reasonable expectations that the company has adequate resources to continue its operations for the next twelve months and therefore continue to use the going concern basis in preparing the financial statements for the following reasons:

 

-Commercial targets have consistently been met leading to a steady revenue stream and positive cash flows. This led to develop a long lasting relationship with the multinational customer which is a major pharmaceutical company. Starting from September 2008, the multinational customer has always renewed its commercial contracts.

 

-In line with Finesco’s strategy to find a business partner, Apricus accepted, by way of a share contribution, 100% of all outstanding common stock of Finesco SAS on July 12, 2012 and Finesco acquired Portalis, a pharmaceutical laboratory, on July 27, 2012. This provides a new market and new perspectives to Scomedica as Apricus expects to explore registration and/or commercialization of their current erectile dysfunction product Vitaros ® and their other pipeline products in the near future on the French market through Portalis, and with the support of Scomedica medical representative teams.

 

In the event these circumstances that support the ability of Finesco to continue as a going concern are not met (loss of the multinational customer contract or no new customer contracts), it may not be able to continue its operations as a going concern and therefore may not be able to realize its assets and extinguish its liabilities in the ordinary course of operations and at the amounts stated in the financial report.

 

3.First time adoption of IFRS

 

3.1Statement of compliance and application of IFRS 1

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB. These are Finesco’s first consolidated financial statements prepared in accordance with IFRSs as issued by the IASB and IFRS 1 “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) has been applied.

 

As a consequence, the financial statements presented below, prepared in accordance with IFRSs as issued by the IASB comprise:

 

-three statements of financial position (periods ended June 30, 2012 and December 31, 2011 – Successor – and period ended January 1, 2011 – Predecessor)

 

-three statements of comprehensive income and statements of cash-flows (Successor periods and Predecessor period respectively)

 

Predecessor and Successor periods have been prepared in accordance with IFRSs as issued by the IASB. The opening statement of financial position corresponds to January 1, 2011.

 

Reconciliation between the amounts included in the financial statements prepared in accordance with French General Accepted Accounting Principles ("GAAP") under Commercial Code French Commercial Code is presented in Note 10.

 

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In preparing these consolidated financial statements in accordance with IFRS 1, Finesco has applied the mandatory exceptions from full retrospective application of IFRS, presented in paragraph 3.2 below.

 

The company has not applied any of the optional exemptions stated by IFRS 1.

 

3.2Mandatory exceptions from full retrospective application followed by Finesco

 

The following mandatory exceptions are not applicable to Finesco: Derecognition of financial assets and liabilities exception, Hedge accounting exception and Assets classified as held for sale exception.

 

Regarding the estimates exception: upon an assessment of the estimates made under French GAAP, the company has concluded that there was no necessity to revise the estimates under IFRS except where estimates were required by IFRS and not required by French GAAP. However, some provisions and assumptions have been revised to comply with IFRS rules (refer to French GAAP to IFRS reconciliation in note 10).

 

4.Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

 

4.1Principles of consolidation

 

Finesco SAS holds 100% of the shares of Scomedica and fully consolidates Scomedica’s financial statements starting from May 16, 2011, the date on which control has been transferred to Finesco SAS. The two companies are consolidated on the basis that their financial statements closed as of December 31, 2011 and June 30, 2012 (Successor periods). Financial statements presented for the Predecessor period correspond to Scomedica financial statements standalone.

 

Intercompany transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized in assets are also eliminated.

 

4.2Segment reporting

 

As Finesco operates in one country with a single activity “medical representatives”, it is not necessary to disclose “segment information” according to IFRS 8 “Operating Segments”.

 

The “direct sales to pharmacies” activity sold in February 2011 is shown under discontinued operations.

 

4.3Fixed assets

 

Fixed assets are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition of the asset.

 

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs and maintenance costs are charged to the consolidated statement of comprehensive income during the period in which they are incurred.

 

Finesco has only furniture fittings and equipments as part of its fixed assets. They are depreciated on a straight-line basis over their estimated lives (10 years).

 

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

 

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An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

 

4.4Goodwill / Negative goodwill

 

Goodwill is measured as the excess of the total consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net fair value of the acquiree’s identifiable net assets. If the group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the total of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree, the excess is recognized immediately in profit as negative goodwill.

 

The Acquisition resulted in the recognition of a profit (negative goodwill) included in the Successor statement of comprehensive income (refer to note 8.6 Business Combination).

 

4.5Financial assets and liabilities

 

Financial assets and liabilities are recognized when the company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is settled, cancelled or has expired.

 

Finesco has no financial assets or liabilities at fair value through profit and loss, no available for sale assets, no derivatives used for hedging and no complex financial instruments.

 

Since May 2011, Finesco has a financial liability in the form of a loan from Gérard Burger. Refer to the note 11 “Related-party transactions”.

 

Finesco’s financial assets and liabilities by category are disclosed in the note 7.8 “Financial assets and liabilities by category”.

 

4.6Other non-current financial assets

 

Other non-current financial assets arise from contracts concluded by Scomedica after its buy-out by Finesco SAS in May 2011 and consist mainly in deposits for office space lease and for the car fleet lease and related expenses.

 

4.7Restricted cash

 

Restricted cash in the statement of financial position represents cash placed on deposit at the bank in connection to car-lease contracts (as a counterpart to guarantees granted by the bank to the car-lease company).

 

4.8Customer accounts receivable, net

 

Customer accounts receivable are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

 

Customer accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

 

13
 

 

The statement of financial position at January 1, 2011 includes:

 

-Predecessor’s customer accounts receivable in relation to medical representative activity, which results from revenues, and

 

-Predecessor’s customer accounts receivable in relation to pharmacists for “direct sales to pharmacists” activity, which are accounted for as a counterpart of a debt account (to Wockhardt), without any impact on the income statement (Scomedica acting as an agent) as the accounts receivable and debt pass-through without effect, and

 

-Predecessor’s customer accounts receivable in relation to Wockhardt and its subsidiaries for “direct sales to pharmacies” activity, which results from revenue, and represent the “agent commission” earned by Scomedica in this activity.

 

4.9Cash and cash equivalents

 

Cash and cash equivalents includes cash in hand, deposits, held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

 

4.10Share capital

 

Ordinary shares are classified as equity.

 

For Finesco SAS (holding company):

 

On May 16, 2011 the authorized share capital was 1 000€. The total issued and outstanding number of common shares was 100 with 10 € par value.

 

Following an additional paid in capital on December 2011 the authorized capital is 60 000 €. The total issued and outstanding number of common shares is 6 000 at 10 € par value.

 

For Scomedica (the subsidiary:

 

The total authorized share capital is 40 000 €. The total issued and outstanding number of common shares is 2 500 at 16 € par value.

 

Cf. Statement of changes in equity and note 8.6 Business Combination.

 

4.11Borrowings

 

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Only borrowings consist of Gérard Burger’s shareholder loan to the company.

 

4.12Employee benefits

 

Finesco SAS has no employees as of December 31, 2011. Its subsidiary Scomedica has a defined benefit plan which consists of a lump-sum paid when the employee goes on retirement. The amount of the lump sum is based on the length of service and earnings of the person entitled.

 

The cost of the defined benefit plan is determined using the projected unit credit method. The related pension liability recognized in the statement of financial position is the present value of the defined benefit obligation at the end of the reporting period (Scomedica has no plan assets).

 

Actuarial valuations for defined benefit plans are carried out annually and, when necessary, for interim closings. The discount rate applied in the computation of the present value of the pension liability corresponds to the yield on high quality corporate bonds denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

 

14
 

 

Actuarial gains and losses are recognized in full in the period in which they occur, in the income statement.

 

Past-service costs are recognized immediately to the extent the benefits are vested, and otherwise are amortized straight-line over the average period until the benefits become vested.

 

Finesco has chosen to report interest cost in operating expense in the statement of comprehensive income.

 

4.13Provisions

 

Finesco accounts for provisions related to labor litigation risks. These provisions are recognized in other liabilities when (i) the company has a current legal or constructive obligation as a result of past events; (ii) it is more likely than not that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated. Provisions are evaluated according to management’s best estimate of the amount required to settle the obligation at the end of the reporting period.

 

4.14Current and deferred income tax

 

The tax expense for the periods presented are comprised of current and deferred taxes. Tax is recognized in the income statement, except when it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. Finesco has no items recognized in other comprehensive income.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to tax payable from previous years.

 

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not recognized if it arises from the initial recognition of goodwill or the initial recognition of an asset and liability in a transaction other than a business combination that, at the time of the transaction, affects either accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except, in the case of subsidiaries, where the timing of the reversal of the temporary difference is controlled by the company and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Deferred income tax is determined on a non- discounted basis using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to be applied when the deferred tax asset is realized or liability is settled. Deferred tax assets are recognized to the extent that it is probable that future profits will be available against which the deductible temporary differences can be utilized.

 

Deferred income tax assets and liabilities are presented as non-current items in the statement of financial position.

 

4.15Trade accounts payable

 

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

 

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

 

15
 

 

4.16Discontinued operations

 

A discontinued operation is a component of the group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. The comparative statement of comprehensive income includes discontinued operations as if they had been discontinued from the start of the comparative period.

 

In February 2011, Scomedica decided to sell one of its major lines of business, the “direct sales to pharmacies” activity (refer to note 2). This disposal meets also the IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” criteria to be classified as held for sale. As a consequence, the relevant disposal is therefore reported under discontinued operations in the consolidated income statement and consolidated statement of cash flows. As of January 1, 2011, the direct sales activity did not meet the IFRS 5 criteria to be classified as held for sale in the balance sheet, since the commitment to sell was not firm and the activity was not available for immediate sale due to the legal constraints of the safeguard procedure.

 

The income statement of the direct sales to pharmacists activity stand-alone reported separately under the Predecessor as required by IFRS 5 is as follows:

 

   Successor   Predecessor 
   Half-year ended June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
Revenue   -    -    49 
Expenses   -    -    (211)
Profit (loss) before income taxes of discontinued operations   -    -    (162)
Income tax expense   -    -    54 
Profit (loss) after income taxes of discontinued operations   -    -    (108)
Pre-tax gain (loss) recognized on the re-measurement of assets of disposal group   -    -    - 
Tax   -    -    - 
After-tax gain (loss) recognized on the re-measurement of assets of disposal group   -    -    - 
Total comprehensive income (loss)   -    -    - 

  

4.17Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services given, stated net of discounts, returns, and value added taxes. It is recognized in the accounting period in which services are rendered (i) when the amount of revenue can be reliably measured; (ii) when it is probable that the future economic benefits will flow to the entity; and (iii) when specific criteria have been met for each of their activities, as described below.

 

Medical representatives:

 

- During 2010, DMH, a Wockhardt subsidiary, contracted directly with the multinational customer and received revenue based on the number of medical visits plus an incentive based on the sales growth of the targeted pharmaceutical products. DMH paid in return a 30% commission to Scomedica. Starting February 14, 2011 and until April 2011, Scomedica signed direct agreements with the multinational customer and earned a commission paid in several installments. From June 2011, the revenue from the multinational customer has been calculated with a formula based on the number of visits and included an incentive based on qualitative criteria and sales growth.

 

- In 2010 and 2011, Scomedica contracted with Wockhardt’s subsidiaries and the related revenue was based on the number of medical visits plus an incentive based on sales targets.

 

Direct sales to pharmacies (activity sold in February 2011): Scomedica acting as an agent for the pharmaceutical manufacturers under contract earned a commission based on the volume of sales of the products ordered by the pharmacists plus an incentive based on market share growth.

 

16
 

 

4.18Other operating income and expense

 

The details of other operating income and expenses is explained in note 8.4. It includes mainly, from May 16, 2011 to December 31 2011, debt write-offs obtained by Scomedica in the context of the safeguard proceeding.

 

4.19Leases

 

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

 

The detail of the operating lease commitments is disclosed in note 9.1 hereafter.

 

Finesco has no finance leases.

  

5.Financial risk management

 

5.1Financial risk factors

 

Credit risk and client concentration

 

Finesco’s revenue is generated from one multinational customer and from Wockhardt subsidiaries only; therefore Finesco is exposed to revenue (customer) concentration risk which is the risk of losing customers, or customers facing financial difficulties. Finesco’s multinational customer is a leading pharmaceutical company with a long history. Wockhardt, which faced several difficulties, has been excluded from the shared contract with the multinational customer under the safeguard procedure. Commercial agreements with Wockhardt’s subsidiaries ended in July 2012.

 

This customer concentration risk is difficult to mitigate; however the business combination of Finesco and Apricus in July 2012 will expand its commercial activity with third parties and with the acquisition of Portalis in July of 2012, Finesco will have the opportunity to sell products to other third parties directly (cf. note 2 “Basis of preparation and adoption of IFRS”, Going Concern).

 

Liquidity risk

 

Liquidity risk arises through a surplus of financial obligations over available financial assets due at any point in time. Finesco is not exposed to liquidity risk since it has no long-term financial borrowings nor financial instruments or derivatives. Based on the existing commercial agreements, Finesco is able to maintain sufficient readily available resources and to self-finance.

 

In addition, Finesco has historically had a positive cash flow result.

 

Finesco will continue its operations beyond twelve months if it is able to self-finance within the next twelve months (refer to note 2 “Basis of preparation and adoption of IFRS”, Going Concern).

 

Market risk

 

The Company is not exposed to market risks such as interest and foreign exchange rate risks since it has no long-term borrowings and does not operate internationally.

 

17
 

 

5.2Capital management

 

The company’s objectives when managing capital are to safeguard Finesco’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

 

Finesco has no borrowings.

 

5.3Fair value estimation

 

Finesco analyses financial assets and liabilities by valuation method. The different levels of valuation have been defined as follows:

 

-Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

 

-Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

 

-Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

Cf note 7.8 Financial assets and liabilities by category.

  

6.Critical accounting estimates and judgments

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Retirement benefit obligations

 

The present value of the pension obligations depends on a number of assumptions that are determined on an actuarial basis. The assumptions used in determining the net cost (income) for pensions are based in part on current market conditions and include the discount rate, salary increase, social charges, retirement age, turnover and expectancy of life. Any changes in these assumptions will impact the carrying amount of pension obligations. The company determines the appropriate discount rate at the end of each year that would be applied to the expected future cash outflows in order to settle the pension obligations. . These assumptions are described in note 7.5.

  

Provisions

 

The company makes provisions such as legal contingencies based on review of information at each reporting date. The company may modify the amount of provisions based on information provided during the period (cf. Note 7.6 Provisions).

 

18
 

 

7.Notes related to the Consolidated Balance Sheet

 

7.1Fixed assets, net

 

   Furniture fittings and equipments   Other 
Predecessor          
As of January 1, 2011          
Cost   9    - 
Accumulated depreciation   (9)   - 
Net book amount   -    - 
           
           
Successor          
As of December 31, 2011          
Cost   50    - 
Accumulated depreciation   (2)   - 
Net book amount   48    - 
           
As of June 30, 2012          
Cost   57    - 
Accumulated depreciation   (4)   - 
Net book amount   53    - 

 

   Successor   Predecessor 
   Half-year ended June 30, 2012   May 16 to December 31,
2011
   January 1 to
May 15,
2011
 
             
Opening net book amount   48    -    - 
Additions   7    50    - 
Disposals               
Depreciation charge   (2)   (2)   - 
                
Closing net book amount   53    48    - 

 

The main movements are related to the purchase of furniture, fittings and equipment for the head office of Scomedica.

 

During the half-year period ended June 30, 2012, the period from May 16 to December 31, 2011 and the period from January 1, 2011 to May 15, 2011, depreciation expense of ‘000€ 2,’000€ 2 and ‘000€ 0 has been charged in “selling, general and administrative expenses”.

 

No impairment charge on fixed assets was booked during the Predecessor period and the Successor periods.

 

19
 

 

7.2Customer accounts receivable, net

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Customer accounts receivable   949    722    3,965 
Less: povision for impairment of customer accounts receivable   -    -    - 
                
    949    722    3,965 

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Accounts receivable with a revenue counterpart   949    722    3,075 
Accounts receivable without a revenue counterpart (acting as an agent)   -    -    890 
                
    949    722    3,965 

  

Finesco has no uncollectible receivables and no allowance for doubtful accounts in 2012 and 2011.

 

As of June 30, 2012, no trade accounts receivable were past due. Therefore, none were impaired.

 

7.3Prepaid expenses and other current assets

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
 Tax receivables   51    43    186 
 Social receivables   1    1    1 
 Prepaid expenses   24    66    4 
 Other current assets   -    3    1,266 
                
    76    113    1,457 

 

7.4Cash and cash equivalents

  

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Cash at bank and on hand   1,027    3,202    1,173 
Short-term bank deposits   1,000    -    - 
                
Cash and cash equivalents (excluding bank overdrafts)   2,027    3,202    1,173 

 

20
 

 

Cash and cash equivalents include the following for the purpose of the statement of cash flows:

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Cash and cash equivalents   2,027    3,202    1,173 
Bank overdrafts   -    -    - 
Cash and cash equivalents   2,027    3,202    1,173 

 

7.5Pension benefit obligations

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Present value of funded obligations   -    -    - 
Fair value of plan assets   -    -    - 
                
                
Deficit of funded plans   -    -    - 
Present value of unfunded obligations   490    380    141 
                
Unrecognised past service cost   -    -    - 
Liability in the balance sheet   490    380    141 

 

Changes in the defined benefit obligation over each period presented is as follows:

 

   Successor   Predecessor 
   Half-year ended June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
             
             
Current service cost   11    7    4 
Interest cost on benefit obligations   8    3    2 
Past service cost   -    -    - 
Actuarial gains and losses (*)   91    83    163 
Benefits paid   -    -    - 
Curtailments / settlements   -    -    - 
Transfer of Pharmaceutical delegates (cash paid)   -    -    (23)
                
At the end of the period   110    93    146 
                

 

(*) This amount includes service from previous employer for employees arrived in 2011.

 

21
 

 

The amounts recognized in the income statement for each period presented are as follows:

 

   Successor   Predecessor 
   Half-year ended June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
             
Current service cost   11    7    4 
Interest cost on benefit obligations   8    3    2 
Expected return on plan assets   -    -    - 
Past service cost   -    -    - 
Actuarial gains and losses   91    83    163 
Losses on curtailment   -    -    - 
                
Total, included in operating expenses   110    93    169 

 

The principal actuarial assumptions used to determine the pension benefit obligation amount are as follows:

 

    Successor    Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
Discount rate   3.38%   4.30%   4.70%
Inflation rate   2.00%   2.00%   2.00%
Future salary increases   2% - 2.5%    2% - 2.5%    2% - 2.5% 
Retirement age   65    65    65 
Average employee age   39    38    34 
Average seniority   11    10    7 
Turnover   12%   13%   17%

 

At June 30, 2012, a change of 0.5% of the discount rate or in the future salary increase would impact the pension benefit obligation by around 7% and 8% respectively.

  

7.6Provisions

 

Movements of total short term provision in the balance sheet are as follows:

 

   Successor   Predecessor 
   Half-year ended June 30, 2012   May 16 to December 31,
2011
   January 1 to May 15,
2011
 
At the begining of the period   56    56    56 
Additional provisions   -    -    - 
Unused amounts reversed   -    -    - 
Used during the year   -    -    -
At the end of the period   56    56    56 

 

22
 

 

7.7Deferred income tax

 

The analysis of the deferred tax assets and deferred tax liabilities is as follows:

 

Deferred tax assets  Pension benefit obligation   Employee profit sharing   Tax losses carried forward   Other   Total 
Predecessor                         
                          
As of January 1, 2011   47    -    -    6    53 
                          
Successor                         
                          
As of December 31, 2011   127    106    -    11    244 
                          
As of June 30, 2012   163    -    21    34    218 

 

Deferred tax liabilities   Other     Total  
Predecessor          
           
As of January 1, 2011   -    - 
           
Successor          
           
As of December 31, 2011   -    - 
           
As of June 30, 2012   -    - 

 

The change in deferred tax assets and liabilities is fully accounted for in the profit (loss) of the period.

 

The analysis by maturity of the deferred tax assets and deferred tax liabilities is the following:

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Deferred tax assets               
Deferred tax asset to be recovered after more than 12 months   163    127    47 
Deferred tax asset to be recovered within 12 months   55    117    6 
                
Deferred tax liabilities               
Deferred tax liability to be recovered after more than 12 months   -    -    - 
Deferred tax liability to be recovered within 12 months   -    -    - 
                
Deferred tax, net   218    244    53 

 

23
 

 

7.8Financial assets and liabilities by category

 

Finesco has no financial assets or liabilities at fair value through profit and loss, nor assets available for sale or derivatives used for hedging. The company's financial assets and liabilities are classified as follows:

  

   Financial asset category            
As of June 30, 2012
(Successor)
  Loans and
receivables
   Assets at fair
value through
profit and loss
   Available for sale   Total net book
value per balance
sheet
   Fair value   Level
                        
Restricted cash   255    -    -    255    255   Level 1
Other non-current financial assets   41    -    -    41    41   Level 2
Customer accounts receivable, net   949    -    -    949    949   Level 2
Cash and cash equivalents   2,027    -    -    2,027    2,027   Level 1
Total   3,272    -    -    3,272    3,272    

 

 

(1) Refers to valuation method. Refer to note 5.3 "Fair value estimation"

 

   Financial asset category            
As of December 31, 2011
(Successor)
  Loans and
receivables
   Assets at fair
value through
profit and loss
   Available for sale   Total net book
value per balance
sheet
   Fair value   Level
                        
Restricted cash   113    -    -    113    113   Level 1
Other non-current financial assets   76    -    -    76    76   Level 2
Customer accounts receivable, net   722    -    -    722    722   Level 2
Cash and cash equivalents   3,202    -    -    3,202    3,202   Level 1
Total   4,113    -    -    4,113    4,113    

 

   Financial asset category            
As of January 1, 2011
(Predecessor)
  Loans and
receivables
   Assets at fair
value through
profit and loss
   Available for sale   Total net book
value per balance
sheet
   Fair value   Level
                        
Restricted cash   -    -    -    -    -   Level 1
Other non-current financial assets   1    -    -    1    1   Level 2
Customer accounts receivable, net   3,965    -    -    3,965    3,965   Level 2
Cash and cash equivalents   1,173    -    -    1,173    1,173   Level 1
Total   5,139    -    -    5,139    5,139    

 

24
 

 

   Financial liability category            
As of June 30, 2012
(Successor)
  Loans and
receivables
   Other financial
liabilities at
amortised cost
   Total net book
value per
balance sheet
   Fair value   Level
                    
Loans and borrowings   182    -    182    182   Level 2
Income tax payable   -    -    -    -   Level 2
Trade accounts payable   362    -    362    362   Level 2
Total   544    -    544    544    

 

   Financial liability category            
As of December 31, 2011
(Successor)
  Loans and
receivables
   Other financial
liabilities at
amortised cost
   Total net book
value per
balance sheet
   Fair value   Level
                    
Loans and borrowings   182    -    182    182   Level 2
Income tax payable   715    -    715    715   Level 2
Trade accounts payable   417    -    417    417   Level 2
Total   1,314    -    1,314    1,314    

 

   Financial liability category            
As of January 1, 2011
(Predecessor)
  Loans and
receivables
   Other financial
liabilities at
amortised cost
   Total net book
value per
balance sheet
   Fair value   Level
                    
Loans and borrowings   -    -    -    -   Level 2
Income tax payable   95    -    95    95   Level 2
Trade accounts payable   1,728    -    1,728    1,728   Level 2
Total   1,823    -    1,823    1,823    

 

7.9Other current liabilities

 

   Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
             
Other Current Liabilities               
Tax debt   368    216    673 
Social payables   920    1,127    810 
Accrued expenses   -    -    - 
Other current liabilities   4    206    2,742 
                
Total Other Current Liabilities   1,292    1,549    4,225 

 

25
 

 

8.Notes related to the Consolidated Income Statement

 

8.1Revenue

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Medical representatives   3,785    5,440    2,710 
Other operating revenue   -    -    - 
                
Total   3,785    5,440    2,710 

 

8.2Expenses by nature

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Employee benefit expenses (note 8.3)   2,693    3,316    1,603 
Depreciation charge   2    2    - 
Advertising costs   25    58    17 
Operating lease payments   209    287    192 
Other expenses   823    1,667    781 
                
Total cost of services, marketing & selling and general & administrative expenses   3,752    5,330    2,593 

 

8.3Employee salary and benefit expenses

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Wages and salaries   1,827    2,157    1,034 
Social security costs   756    1,066    423 
Pension benefit expenses   110    93    146 
                
    2,693    3,316    1,603 

 

Scomedica division of headcount is as follows:

 

Headcount  Successor   Predecessor 
   June 30, 2012   December 31,
2011
   January 1, 2011 
                
    97    94    96 

 

26
 

 

8.4Other operating income and expenses

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Debt write-off   -    150    - 
Other operating income   13    14    11 
Fines   -    -    - 
Exceptional depreciation   -    -    - 
Other operating expenses   (1)   (7)   (17)
                
Other operating income and expenses   12    157    (6)

 

8.5Finance costs, net

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Financial income on short-term bank deposits   0    3    - 
Interest expense on short-term borrowings   (1)   -    - 
                
Total   (1)   3    - 

 

8.6Business combination

 

Scomedica’s acquired identifiable assets and liabilities were evaluated at fair value. At transaction date no separate assets were identified.

 

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to May
15,
2011
 
             
Purchase price - Total shares price sold to G. Burger   -    -    - 
                
Net fair value of the net identifiable assets and liabilities   -    1,309    - 
                
Negative goodwill   -    1,309    - 

 

8.7Income tax expense

 

    Successor     Predecessor  
    Half-year ended
June 30, 2012
    May 16 to
December 31,
2011
    January 1 to
May 15,
2011
 
                   
Current tax                        
Current tax on profits for the year     -       538       104  
Adjustments in respect of prior years                        
Total current tax     -       538       104  
                         
Deferred tax (note 7.7)                        
Origination and reversal of timing differences     26       (118 )     (62 )
Total deferred tax     26       (118 )     (62 )
                         
Income tax expense     26       420       42  

   

 

 

27
 

The tax on the Finesco’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the profit of the company as follows:

  

   Successor   Predecessor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
   January 1 to
May 15,
2011
 
Profit before tax   44    1,579    111 
Tax effects of:               
Prior year adjustments   -    -    - 
Expenses not deductible for tax purposes   (9)   (16)   (5)
Income not subject to tax   -    122    - 
                
Income tax expense   15    525    37 
Effective tax rate   33%   33%   33%

 

Finesco used a weighted average applicable tax rate was 33.33 % for Successor periods and Predecessor period.

 

9.Commitments and contingencies

 

9.1Operating lease commitments

 

Finesco leases vehicles, Information Technology and telephone equipments and office space under various non- cancelable operating leases.

 

Finesco operates a fleet of leased vehicles for its medical visit representatives. Finesco leases vehicles under operating lease agreements. The lease terms are between two and three years. There is no option to purchase at lease expiration and maintenance is offered as an option.

 

The lease office space contract is cancelable every 3 years.

 

The information technology leases are for 2 years.

 

The telephone contract is for 2 years minimum.

 

The lease expenditure charged to the income statement during the half-year ended June 30, 2012 amounted to 209. The future aggregate minimum lease payments under operating leases are as follows:

 

   Successor 
   June 30, 2012 
     
2012   304 
2013   482 
2014   202 
      
Total   988 

 

As a counterpart of the restricted cash of ‘000€ 255 Scomedica (see note 4.7) obtained a financial guarantee from the bank to the lessor of the vehicles.

 

 

28
 

 

9.2Contingencies

 

Finesco has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities other than those provided for (cf. Note 7.6 Provisions)

 

10.Transition to IFRS

 

Reconciliation of the Balance Sheet as previously reported under French GAAP to IFRS

 

       Correction of
error
   Adjustments     
January 1, 2011
(predecessor period)
  French GAAP   Estimation of
invoices not
received
   Deferred taxes
IAS 12
   IFRS 
Assets                    
Long-term assets                    
Fixed assets, net   -    -    -    - 
Restricted cash   -    -    -    - 
Other non-current financial assets   1    -    -    1 
Deferred tax assets   -         53    53 
    1    -    53    54 
Current assets                    
Customer accounts receivable, net   3,965    -    -    3,965 
Prepaid expenses and other current assets   1,457    -    -    1,457 
Cash and cash equivalents (excluding bank overdrafts)   1,173    -    -    1,173 
    6,595    -    -    6,595 
                     
Total assets   6,596    -    53    6,649 
                     
Shareholders' Equity and Liabilities                    
Shareholders' Equity                    
Share capital   40    -    -    40 
Share premium   -    -    -    - 
Other consolidated reserves   -    -    -    - 
Retained earnings and net profit   233    78    53    364 
Total shareholders' equity   273    78    53    404 
                     
Long-term liabilities                    
Loans and borrowings   -    -    -    - 
Pension benefit obligations   141    -    -    141 
Provisions long term   -    -    -    - 
Other non-current liabilities   -    -    -    - 
Deferred tax liabilities   -    -    -    - 
    141    -    -    141 
Current liabilities                    
Short-term borrowings                  - 
Provisions short term   56    -    -    56 
Trade accounts payable   1,815    (87)   -    1,728 
Income tax payable   95    -    -    95 
Other current liabilities   4,216    9    -    4,225 
    6,182    (78)   -    6,104 
                     
Total liabilities   6,323    (78)   -    6,245 
Total shareholders' equity and liabilities   6,596    -    53    6,649 

 

The reconciliation above shows the opening balance sheet reconciliation as at January 1, 2011 from French GAAP to IFRS. No reconciliation is provided for year-ended 2011 (from both balance sheet and P&L perspective) since Finesco (Successor) published its first consolidated financial statements as at December 31, 2011. Predecessor period refers to Scomedica stand-alone. The explanations below provide details on the opening balance sheet reconciliation.

 

Explanation of error corrections

 

29
 

 

Estimation of invoices not received:

 

Accruals as of January 1, 2011 have been adjusted based on actual invoices received after the closing date.

 

Explanation of reconciling items

 

Deferred tax:

 

For all timing differences (including correction of errors and IFRS adjustments), the deferred tax effect is calculated (cf. note 7.7).

 

11.Related party transactions

 

Predecessor: Until May 16, 2011, Scomedica is controlled at 100% by Wockhardt France Holding.

 

Identified related parties are Wockhardt’s subsidiaries, the President of the company Gérard Burger and Martine Burger.

 

Gérard and Martine Burger were employed by another Wockhardt group subsidiary up to June and April 2011 respectively. Over this period, they received no direct compensation from Scomedica and their cost was re-invoiced through a service level agreement (see below). Direct salary paid by Scomedica to them from their transfer up to May 15, 2011 amount to ’000€ 16.

 

The following transactions were carried out with related parties:

 

-Business relationship related to Medical representatives and Direct sales to pharmacies’ contracts with Wockhardt subsidiaries (cf. Note 4.17 Revenue recognition).

 

-Cash pooling with Wockhardt holding.

 

-Tax integrated group with Wockhardt holding.

 

-Until May 15, 2011, Scomedica received services on logistics, car leasing, administrative support, sales management, marketing, accounting, financial controlling, legal, human resources, purchasing, travel office support, janitorial and information systems support through an ever-green service level agreement with Wockhardt, starting on January 1, 2008 with one-year validity.

 

-On February 28, 2011, Scomedica sold its direct sales to pharmacies’ activity to Niverpharm, one of Wockhardt’s subsidiaries (cf. Note 2 and Note 4.16).

 

    Predecessor  
    January
1, 2011
    of which
related
parties
 
Assets                
Non-current assets                
Fixed assets, net     -       -  
Restricted cash     -       -  
Other non-current financial assets     1       -  
Deferred tax assets     53       -  
      54       -  
Current assets                
Customer accounts receivable     3,965       3,076  
Prepaid expenses and other current assets     1,457       -  
Cash and cash equivalents     1,173       -  
      6,595       3,076  
                 
Total assets     6,649       3,076  
                 
Shareholders' Equity and Liabilities                
Shareholders' Equity                
Share capital     40       -  
Share premium     -       -  
Other consolidated reserves     -       -  
Retained earnings and net profit     364       -  
Total shareholders' equity     404       -  
                 
Non-current liabilities                
Loans and borrowings     -       -  
Pension benefit obligations     -       -  
Provision long term     141       380  
Other non-current liabilities     -       -  
Deferred tax liabilities     -       -  
      141       380  
Current liabilities                
Short-term borrowings     -       -  
Provisions short term     56       -  
Trade accounts payable     1,728       1503  
Income tax payable     95       95  
Other current liabilities     4,225       40  
      6,104       1,638  
                 
Total liabilities     6,245       2,018  
Total shareholders' equity and liabilities     6,649       2,018  

 

30
 

 

    Predecessor  
    January 1     Of which  
    to May 15,     related  
    2011     parties  
Revenue     2,710       1,042  
Cost of services     (1,960 )     (348 )
Gross profit     750       694  
Selling, genreal and administrative expenses     (633 )     (372 )
Negative goodwill                
Other operating income     11          
Other operating expenses     (17 )     -_  
Profit (loss) from operations     111       322  
Finance income     -       -  
Finance costs     -       -  
Finance costs, net     -       -  
Share of profit (loss) of associates     -          
Profit (loss) before income taxes     111       322  
Income tax expense     (42 )     (104 )
                 
Net profit (loss) for the year from continuing operations     69       218  
Discontinued operations                
Net profit (loss) for the year from discontinued operations     (108 )     73  
Net profit (loss)     (39 )     291  
                 
Other comprehensive income                
Total comprehensive income (loss)     (39 )     291  
                 
Total comprehensive income (loss) from:                
Continuing operations     69       1,159  
Discontinued operations     (108 )     73  

 

Successor: The identified related-parties are Gerard Burger, and Martine Burger. The other three shareholders do not have influence on the operating decisions of the company. The pension obligation for related parties on June 30, 2012 and December 31, 2011 are ’000€ 63 and ’000€ 53, respectively.

 

31
 

 

Related-party compensation:

 

   Successor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
 
         
Wages and salaries   165    267 
Social security costs   73    121 
Pension benefit expenses   10    7 
           
    248    395 

 

Shareholder loan from Gérard Burger:

 

   Successor 
   Half-year ended
June 30, 2012
   May 16 to
December 31,
2011
 
         
Amount of the loan   182    182 
Term   no contractual term      
Amount reimbursed during the year   -    - 
           
    182    182 

 

The loan is interest free, and was reimbursed in July 2012.

 

12.Events after the reporting period

 

Commercial contracts

 

-Commercial contract with the multinational customer valid for 6 months to 1 year for marketing pharmaceuticals developed by the customer. The contract was renewed in July 2012 for a short-term period.

 

-Commercial contracts with Wockhardt’s subsidiaries: All contracts signed with Wockhardt ended in July 2012 and have not been renewed since then.

 

Business combination

 

-Apricus Biosciences, Inc (“Apricus Bio”), an American pharmaceutical company listed on the NASDAQ, accepted, by way of a share contribution, 100% of all outstanding common stock of Finesco SAS on July 12, 2012.

 

Apricus’ objective is to benefit from the sales force of Scomedica to market products developed or licensed by Apricus.

 

-Finesco acquired Portalis, a pharmaceutical laboratory (refer to note 2 “Basis of preparation and adoption of IFRS”, Going Concern).

 

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