Exhibit 99.1

PHARMA GENEXX S.A.

Financial statements

December 31, 2008 and 2007
A free translation from the original in Spanish

 

 

CONTENIDO

Report of Independent Registered Public Accounting Firm
Balance sheet
Income statement
Notes to the financial statements

$		-		Chilean pesos
ThCh$		-		Thousands of Chilean pesos
UF		-		A UF is a daily indexed, peso-denominated monetary unit. The UF rate is set daily in advance based on the previous month’s inflation rate.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
of Pharma Genexx S.A.

1		We have audited the accompanying balance sheets of Pharma Genexx S.A. as of December 31, 2008 and 2007 and the related statements of income and of cash flows for the years then ended. These financial statements (including the corresponding notes) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
2		We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
3		In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pharma Genexx S.A. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in Chile.
4		Accounting principles generally accepted in Chile vary in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). Information relating to the nature and effect of such differences is presented in Note 16 to the financial statements.

 

 

/s/ PricewaterhouseCoopers
Santiago, Chile
December 4, 2009

PHARMA GENEXX S.A.

BALANCE SHEETS

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

STATEMENT OF INCOME

		For the years ended
		December 31,
		2008				2007
		ThCh$				ThCh$
OPERATING INCOME
Net sales			5,723,963				1,925,903
Cost of sales			(3,780,896	)			(1,324,301	)
Gross margin			1,943,067				601,602
Administrative and selling expenses			(1,208,341	)			(505,695	)
Operating profit			734,726				95,907
NON-OPERATING PROFIT
Financial income			1,279				8,317
Financial expenses			(123,591	)			(8,743	)
Monetary correction			31,100				(12,016	)
Exchange differences			(247,508	)			9,295
Non-operating profit			(338,720	)			(3,147	)
Income before income tax			396,006				92,760
Income tax			(59,999	)			(12,506	)
NET INCOME			336,007				80,254

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

STATEMENT CASH FLOWS

		For the years ended
		December 31,
		2008				2007
		ThCh$				ThCh$
OPERATING ACTIVITIES
Net income			336,007				80,254
Principal non-cash charges / (credits) to income:
Depreciation of fixed assets			2,734				1,852
Amortization of intangibles			43,905				30,716
Monetary correction			(31,100	)			12,016
Exchange rate			247,508				(9,295	)
Other charges not represented in the cash flows			27,424				4,356
Changes in assets that affect the cash flows:
Account receivables			(1,768,507	)			(505,212	)
Inventories			(2,212,531	)			(830,512	)
Accounts receivables from to related companies			(209,566	)			(586,314	)
Other assets			(94,253	)			(81,504	)
Changes in liabilities that affect the cash flows:
Accounts payable			444,964				176,820
Other liabilities			51,698				60,178
Net cash used in operating activities			(3,161,717	)			(1,646,645	)
FINANCING ACTIVITIES
Capital contributions			403,200				437,470
Loans obtained			3,159,038				1,252,063
Payment of loans			(115,481	)			(387,285	)
Net cash provided by financing activities			3,446,757				1,302,248
INVESTING ACTIVITIES
Purchase of fixed assets			(1,883	)			(6,489	)
Purchase of intangibles			(67,715	)			(30,383	)
Net cash used in investing activities			(69,598	)			(36,872	)
Net cash flows for period			215,442				(381,269	)
Inflation effect on cash and cash equivalents			(9,960	)			(9,303	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			205,482				(390,572	)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD			58,519				449,091
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD			264,001				58,519

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

NOTES TO THE FINANCIAL STATEMENTS

AT DECEMBER 31, 2008 AND 2007

The Company was created in public writing on September 22, 2006. Its objectives are importation, exportation, manufacturing through third parties and marketing generic medicines and medical and hospital consumables in the Republic of Chile and abroad. The Company also represents and negotiates with firms, companies and laboratories that manufacture and/or market these generic medicines and medical and hospital consumables.

It is a closely held corporation whose constitution was published in the Official Bulletin N^o 38,575 on September 28, 2006.

a)

Accounting period

The present financial statements cover the periods between January 1 and December 31, 2008 and 2007.

b)

Preparation basis

The financial statements at December 31, 2008 and 2007 have been prepared in accordance with generally accepted accounting principles in Chile.

c)

Monetary correction

The present financial statements have been adjusted to take into account the effect of variation of currency on the purchasing power during the period. The update has been determined by the variation of the Consumer Price Index published by the National Institute of Statistics. The variation for the year 2008 was 8.9% (7.4% for 2007).

d)

Presentation basis

For comparative purposes the financial statements from December 31, 2007 are presented updated and adjusted by 8.9%.

e)

Conversion bases

At December 31, 2008 and 2007 the assets and liabilities in foreign currency and UF have been expressed according to the following:

		2008				2007
		$				$
US Dollar			636.45				486.89
UF			21,452.57				19,622.66

The corresponding exchange differences are accounted for in the results for the periods within the item Exchange Differences.

f)

Inventories

Inventories are presented at price — level restated costs and do not exceed their net realizable value.

g)

Allowance for doubtful accounts

Based on historical behavior of the portfolio of clients, the Company maintains a provision for covering possible losses due to non recoverable accounts. This allowance is presented net of its corresponding asset accounts.

h)

Fixed assets

Fixed assets are stated at cost plus price-level restatements. Depreciation for each year has been calculated using the straight-line method, based on the estimated useful lives assigned to the assets.

i)

Intangibles

Intangibles correspond to medical registers and commercial brands, which are presented at their price — level restated cost net of amortization. Medical registers represent pharmaceutical and cosmetics rights paid to the Chilean Institute of Public Health (ISP) for the right of use of these products in Chile and abroad. This rights are amortized on straight-line basis over the period covered by the rights (5 years).

j)

Income tax and deferred tax

In agreement with the current tax regulations, income tax is determined on accrual basis.

Deferred tax is based on all temporary differences that originate from tax and accounting basis of assets and liabilities. This conforms to the Technical Bulletins N° 60, 69, 71 and 73 issued by the Chilean Institute of Accountants.

k)

Vacation

The annual cost of vacation has been accounted for in the financial statements on an accrual basis.

l)

Statement of cash flows

The Company has considered all available funds and investments that are easy to liquidate within 90 days as cash and cash equivalents.

All cash flows relating to the Company ´s business, including interest paid, financial income and all other flows that are not defined as investing or financing have been included under operating activities. The operational concept used in this statement is wider than that considered in the statement of income.

m)

Derivative contracts

At the end of each year the Company maintains contracts that cover present and near future transactions. These are valued in accordance with the Technical Bulletin N^o 57 issued by the Chilean Institute of Accountants A.G.

NOTE 3 – MONETARY CORRECTION

The application of the monetary correction mechanism, as described in Notes 2 c) and d) is summarized as follows:

		Credit (charge) to
		financial statements
		2008				2007
		ThCh$				ThCh$
Update of:
Equity			(82,574	)			(31,039	)
Inventory			96,643				10,493
Intangibles			11,215				7,020
Current assets			5,816				1,510
Total			31,100				(12,016	)

NOTE 4 – EXCHANGE DIFFERENCES

At December 31, 2008 and 2007, the Company maintains assets and liabilities in dollars that generated the following exchange differences:

Item		Currency		2008				2007
				ThCh$				ThCh$
Assets (charge)/credit
Cash		Dollars			(3,297	)			—
Other assets		Dollars			88,923				—
Total (charge)/credit					85,626				—
Liabilities (charge)/credit
Imports in transit		Dollars			(20,685	)			—
Bank obligations		Dollars			(315,412	)			9,295
Other liabilities		Dollars			2,963				—
Total (charge)/credit					(333,134	)			9,295
Total exchange rate difference					(247,508	)			9,295

NOTE 5 – ACCOUNT RECEIVABLES

At December 31, 2008 and 2007, the details are the following:

		2008				2007
		ThCh$				ThCh$
Local clients			2,368,157				508,201
Allowance for doubtful accounts			(136,982	)			(4,356	)
Total accounts receivable			2,231,175				503,845

NOTE 6 – BALANCES AND TRANSACTIONS WITH RELATED COMPANIES

a)

Accounts receivable from related companies — short term

Entity		Type of relationship		2008				2007
				ThCh$				ThCh$
Farmacias Ahumada S.A.		Indirect			661,639				492,307

b)

Accounts payable to related companies- short term

Entity		Type of relationship		2008				2007
				ThCh$				ThCh$
Laboratorio Volta		Shareholder			469,491				13,997

c)

The transactions made with related companies during 2008 and 2007 were the following:

(Charge)

Transaction

credit to income

Entity

Type of relationship

Concept

2008

2007

2008

2007

ThCh$

ThCh$

ThCh$

ThCh$

Farmacias Ahumada S.A.

Indirect

Capital contributions

201,600

218,735

—

—

Sale of inventory

1,623,040

1,158,389

505,731

360,948

Commercial output

—

248,087

—

104,238

Laboratorio Volta S.A.

Shareholder

Capital contributions

201,600

218,735

—

—

Sale of inventory

408,971

772,391

127,423

240,654

Loans

—

513,325

—

—

Inventory purchased

2,611,311

1,045,349

—

—

NOTE 7 – INVENTORIES

As of December 31, 2008 and 2007, inventories are valued as described in Note 2 f) and are detailed as follows:

		2008				2007
		ThCh$				ThCh$
Finished products			2,065,742				651,122
Merchandise in transit			643,550				147,073
Direct materials			133,521				47,912
Materials and packaging			152,466				12,544
Products in process			10,380				5,065
Total inventories			3,005,659				863,716

NOTE 8 – FIXED ASSETS

As of December 31, 2008 and 2007 fixed assets are comprised as follows:

		2008				2007
		ThCh$				ThCh$
Computer equipment			7,256				5,851
Furniture and utilities			2,250				2,250
Total fixed assets			9,506				8,101
Accumulated depreciation			(4,586	)			(1,852	)
Total fixed assets (net)			4,920				6,249

The charge for depreciation in 2008 amounted to ThCh$ 2,734 (ThCh$ 1,852 in 2007). This was included within the administrative and selling expenses item in the statement of income.

NOTE 9 – INTANGIBLES

The composition of this item as of December 31, 2008 and 2007 is as follows:

		2008				2007
		ThCh$				ThCh$
Medical registers			185,815				118,100
Trademarks			5,263				5,263
Subtotal			191,078				123,363
Accumulated amortization			(74,621	)			(30,716	)
Total			116,457				92,647

NOTE 10 – DERIVATIVE CONTRACTS

At December 31, 2008 Pharma Genexx S.A. maintains derivative contracts to cover its obligations with banks held in US Dollars.

The outstanding contracts at the end of the year 2008 have been valued in accordance with the criteria described in Note 2 m), and their maturity details are as follows:

						Fair value at				Effect on Income
Days until maturity		Contract value				December 31, 2008				statement (profit)
		ThCh$				ThCh$				ThCh$
0 to 30			606,918				671,281				64,363
31 to 60			264,299				304,504				40,205
61 to 90			811,526				897,586				86,061
91 to 120			326,895				369,893				42,997
121 to 180			823,440				797,860				(25,580	)
More than 180			85,369				83,730				(1,639	)
Total											206,407

NOTE 11 – OBLIGATIONS WITH BANKS AND FINANCIAL INSTITUTIONS

Details		Currency type		2008				2007
				ThCh$				ThCh$
Itaú Bank		Dollars			339,359				502,052
Itaú Bank		Pesos			100,175				54,450
Bank of Chile		Dollars			112,951				198,966
Bice Bank		Pesos			—				109,351
Bice Bank		Dollars			1,299,118				—
Santander Bank		Dollars			298,949				—
Santander Bank		Pesos			100,431				—
Corp Banca Bank		Dollars			906,439				—
BBVA Bank		Dollars			580,231				—
BBVA Bank		Pesos			215,526				—
Total					3,953,179				864,819
Annual average interest rate					5.17	%			7.63	%

NOTE 12 – INCOME TAX AND DEFERRED TAX

a)

Recoverable income tax

Recoverable income tax is comprised by the following Items:

Detail		2008				2007
		ThCh$				ThCh$
Income tax			—				(15,561	)
Monthly provisional payments			—				20,678
VAT fiscal credit			156,149				60,294
Total			156,149				65,411

b)

Tax obligations

At December 31, 2008, the Company had a taxable income of ThCh$ 546,818 (ThCh$ 91,535 in 2007). Thus an income tax provision of ThCh$ 92,959 (ThCh$ 15,561 in 2007) which in 2008 is presented net of Monthly provisional payments of ThCh$ 49,870.

c)

Deferred tax

The accumulated balance of deferred tax at the end of each year is as follows:

		Short term
Temporary differences		2008				2007
		ThCh$				ThCh$
Assets
Vacation accrual			2,709				2,314
Allowance for doubtful accounts			22,607				741
Obsolescence provision			12,867				—
Total assets			38,183				3,055

d)

Effect on Income

		(Charge) credit to
		financial statements
		2008				2007
		ThCh$				ThCh$
Current tax expenses			(92,959	)			(15,561	)
Deferred tax effect (current year)			32,960				3,055
Total			(59,999	)			(12,506	)

NOTE 13 – EQUITY

The movement in equity is as follows:

						Retained				Income of
		Capital in paid				earnings				the year				Total
		ThCh$				ThCh$				ThCh$				ThCh$
Balance as of January 1, 2007			398,400				—				(13,247	)			385,153
Transfer to retained earning			—				(13,247	)			13,247				—
Capital contributions			400,000				—				—				400,000
Monetary correction			29,482				(980	)			—				28,502
Net income for the year			—				—				73,695				73,695
Balance as of December 31, 2007			827,882				(14,227	)			73,695				887,350
In constant pesos of December 31, 2008 for comparative purposes			901,563				(15,493	)			80,254				966,324
Balance as of January 1, 2008			827,882				(14,227	)			73,695				887,350
Transfer to retained earnings			—				73,695				(73,695	)			—
Capital contributions			400,000				—				—				400,000
Monetary correction			77,281				5,293				—				82,574
Net income for the year			—				—				336,007				336,007
Balance as of 31, 2008			1,305,163				64,761				336,007				1,705,931

In agreement with Article N^o 10 of Law N^o 18,046 the corresponding monetary correction has been incorporated into Paid-in capital, which amounted to ThCh$ 1,305,163 as of December, 31 2008.

During October 2008, Fasa Chile S.A. and Laboratorio Volta S.A. integrated capital contributions of ThCh$ 200,000 (historical value), with each maintaining their participation at 50%.

During August 2007, Fasa Chile S.A. and Laboratorio Volta S.A. integrated capital contributions of ThCh$ 200,000 (historical value), with each maintaining their participation at 50%.

On September 22, 2006, the companies Fasa Corp S.A. and Laboratorio Volta S.A. concurred to the formation of the Company, each with a cash contribution of ThCh$ 200,000 (historical value) and contributions payable of ThCh$ 800,000 (historical value), with each maintaining their ownership at 50%.

NOTE 14 – AGREEMENTS AND CONTINGENCIES

The Company administration and their legal counsels are not aware of any possible contingencies and/or agreements that could affect the financial statements at December 31, 2008.

There is no knowledge of events occurring between December 31, 2008 and the issuance date of these financial statements that could significantly affect their interpretation.

Accounting principles generally accepted in Chile vary in certain important respects from the accounting principles generally accepted in the United States. Such differences involve certain methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by accounting principles generally accepted in the United States (“US GAAP”).

I

Differences in measurement methods

The principal methods applied in the preparation of the accompanying financial statements which have resulted in amounts which differ from those that would have otherwise been determined under US GAAP are as follows:

a)

Inflation accounting

Chilean accounting principles require that financial statements be restated to reflect the full effects of loss in the purchasing power of the Chilean peso on the financial position and results of operations of reporting entities. The method, described in Note 2, is based on a model which enables calculation of net inflation gains or losses caused by monetary assets and liabilities exposed to changes in the purchasing power of the local currency, by restating all non-monetary accounts in the financial statements. The model prescribes that the historic cost of such accounts be restated for general price-level changes between the date of origin of each item and the year-end, but allows direct utilization of replacement values for the restatement of inventories as an alternative to the price-level restatement of those assets, but only if the resulting variation is not material.

The inclusion of price-level adjustments in the accompanying financial statements is not considered appropriate under US GAAP; accordingly, the effect of price-level changes has been eliminated in the reconciliation to US GAAP.

b)

Income tax

Under Chilean GAAP, effective January 1, 2000, the Company began applying Technical Bulletin No. 60 of the Chilean Institute of Accountants (“TB 60”) concerning deferred income taxes. TB 60 requires the recognition of deferred income taxes for all temporary differences, whether recurring or not, using an asset and liability approach. The effects of deferred income taxes at January 1, 2000 that were not previously recorded, were recognized, in accordance with the transitional provision provided by TB 60, against asset or liability accounts (“complementary accounts”) and were recorded to offset the effects of the deferred tax assets and liabilities not recorded prior to January 1, 2000. Complementary accounts are amortized to income over the estimated average reversal periods corresponding to underlying temporary differences to which the deferred tax asset or liability related. A valuation allowance is provided if, based on the weight of available evidence, some portion, or all, of the deferred income tax assets will not be realized.

For U.S. GAAP purposes, the Company applied SFAS No. 109, “Accounting for Income Taxes”, whereby income taxes are also recognized using substantially the same asset and liability approach, with deferred income tax assets and liabilities established for temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at enacted rates expected to be in effect when such amounts will be realized. A valuation allowance is provided against deferred tax assets that are not recoverable on a more-likely-than-not basis.

The effect of providing for deferred income taxes for the differences between the amounts shown for assets and liabilities in the balance sheet and the tax bases of those assets and liabilities is included in paragraph 1 f) below and certain disclosures required under FAS 109 are set forth under section III b) below.

c)

Comprehensive income

Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For US GAAP purposes, companies are required to report comprehensive income and its components in a full set of general purpose financial statements. US GAAP requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Under Chilean GAAP, the statement of comprehensive income is not required, and all transactions arising from non-owner sources are reported as balance accounts until realized.

As of December 31, 2008 and 2007, there were no transactions to be reported within the statement of comprehensive income.

d)

Derivative financial instruments

The Company enters into foreign currency forward exchange contracts to cover the risk of exposure to exchange rate differences arising from its import agreements (letter of credits). Under these forward contracts, for any rate above or below the fixed rate, the Company receives or pays the difference between the spot rate and the fixed rate for the given amount at the settlement date.

Under Chilean GAAP, derivatives are accounted for in accordance with Technical Bulletin N° 57, “Accounting for Derivative Contracts” (“TB 57”). Under TB 57, all derivative financial instruments should be recognized on the balance sheet at their fair value. In addition, TB 57 requires that derivative financial instruments be classified as Non-hedging (investment) instruments and Hedging instruments, the latter further divided into those covering existing transactions and those covering anticipated transactions.

Contracts to cover existing transactions hedge against the risk of a change in the fair value of a hedged item. The differences resulting from the changes in the fair value of both the hedged item and the derivative instrument should be accounted for as follows:

i)		If the net effect is a loss, it should be recognized in earnings in the period of change.
ii)		If the net effect is a gain, it should be recognized when the contract is closed and accordingly deferred on the balance sheet.
iii)		If the net effect is a gain and net losses were recorded on the transaction in prior years, a gain should be recognized in earnings in the current period up to the amount of net losses recorded previously.

iv)

If the effect is a net loss and net gains were recorded (as deferred revenue) on the transaction in prior years, the gain should be utilized to offset the net loss before recording the remaining loss in the results of operations for the year.

Contracts to cover anticipated transactions are those that have the objective of protecting cash flow risks of a transaction expected to occur in the future (cash flow hedge). The hedging instrument should be recorded at its fair value and the changes in fair value should be stated on the balance sheet as unrealized gains or losses. When the contract is closed the unrealized gains or losses on the derivative instrument should be recognized in earnings without affecting the cost or sales price of the asset acquired or sold in the transaction. However, probable losses arising from purchase commitments should not be deferred.

Non-hedging (investment) instruments should also be presented at their fair value, with changes in fair value reflected in the earnings of the period in which the change in fair value occurs.

Under US GAAP, the Company applies SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS 137 and SFAS 138 on the same matter (collectively referred to herein as “SFAS 133”). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires that all derivative instruments be recognized on the balance sheet at fair value and that changes in the fair value be recognized in income when they occur, the only exception being derivatives that qualify as hedges. To qualify the derivative instrument as a hedge, the Company must meet strict hedge effectiveness and contemporaneous documentation requirements at the initiation of the hedge and assess the hedge effectiveness on an ongoing basis over the life of the hedge. At December 31, 2008 and 2007, the forward contracts designated as hedges for Chilean GAAP purposes did not meet the documentation requirements to be designated as hedges under US GAAP. Accordingly, for US GAAP purposes the Company recognizes all changes in fair values in income as incurred. During the year ended December 31, 2008 and 2007, deferred gains have been recognized for certain derivative contracts under Chilean GAAP. Deferrals are not permitted under US GAAP for companies that do not qualify for hedge accounting. These deferred gains have been adjusted for in paragraph 1 f) below.

e)

Trademarks

Under Chilean GAAP, beginning in 1998 trademarks are amortized over a period not exceeding 20 years. Under US GAAP, internally developed trademarks are expensed as incurred.

f)

Effects of conforming to US GAAP

The adjustments to reported net income pursuant to Chilean GAAP required to conform with accounting principles generally accepted in the United States are as follows:

		2008				2007
		ThCh$				ThCh$
Net income as shown in the Chilean GAAP financial statements			336,007				73,695
Reversal of price level adjustment of (par 1 a)):
Fixed assets			(728	)			(577	)
Accumulated depreciation			242				132
Trademarks			(13,824	)			(6,446	)
Amortization of trademarks			2,609				—
Inventories			(87,008	)			(9,635	)
Pre-paid expenses			(1,862	)			(355	)
Recoverable tax			(3,377	)			(587	)
Equity			82,574				28,502
Adjustment for deferred income taxes (par. 1b))			21,185				61
Adjustment related to derivative instruments (par. 1d))			(20,664	)			17,107
Net income according to US GAAP			315,154				101,897
Comprehensive income according to US GAAP, net of tax (par. 1c))			315,154				101,897

The adjustments required to conform net equity amounts to the accounting principles generally accepted in the United States are as follows:

		2008				2007
		ThCh$				ThCh$
Net equity as shown in the Chilean GAAP financial statements			1,705,931				887,350
Reversal of price level adjustment of (par 1 a)):
Fixed assets			(1,305	)			(577	)
Accumulated depreciation			374				132
Trademarks			(20,270	)			(6,446	)
Amortization of trademarks			2,609				—
Inventory			(96,643	)			(9,635	)
Pre-paid expenses			(2,217	)			(355	)
Recoverable tax			(3,964	)			(587	)
Adjustment for deferred income taxes (par. 1b))			22,011				826
Adjustment related to derivative instruments (par. 1d))			(3,557	)			17,107
Adjustment for trademarks (par. 1e))			(4,500	)			(4,500	)
Net equity according to US GAAP			1,598,469				883,315

The following summarizes the changes in Shareholders’ equity under US GAAP during the years ended December 31, 2008, 2007 and 2006:

		ThCh$
Balance at December 31, 2006			381,418
Capital contributions			400,000
Net income for the year			101,897
Balance at December 31, 2007			883,315
Capital contributions			400,000
Net income for the year			315,154
Balance at December 31, 2008			1,598,469

II US GAAP Condensed Balance Sheet

BALANCE SHEET

US GAAP

II.1 US GAAP Condensed Statement of Income

STATEMENT OF INCOME

US GAAP

		For the years
		ended December 31,
		2008				2007
		ThCh$				ThCh$
OPERATIONAL PROFIT
Net sales			5,723,963				1,768,506
Cost of sales			(3,771,170	)			(1,216,071	)
Gross margin			1,952,793				552,435
Administrative and selling expenses			(1,208,341	)			(464,366	)
Operating income			744,452				88,069
NON-OPERATING PROFIT
Financial income			1,279				7,637
Financial expenses			(123,591	)			(8,028	)
Exchange differences			(268,172	)			25,642
Non-operating income			(390,484	)			25,251
Income before income tax			353,968				113,320
Income tax			(38,814	)			(11,423	)
NET INCOME			315,154				101,897

PHARMA GENEXX S.A.

Financial statements

June 30, 2009

 

 

CONTENIDO

Balance sheet
Income statement
Notes to the financial statements

$		-		Chilean pesos
ThCh$		-		Thousands of Chilean pesos
UF		-		A UF is a daily indexed, peso-denominated monetary unit. The UF rate is set daily in advance based on the previous month’s inflation rate.

PHARMA GENEXX S.A.

BALANCE SHEET
(Unaudited)

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

STATEMENT OF INCOME
(Unaudited)

		For the six months
		period ended June 30,
		2009				2008
		ThCh$				ThCh$
OPERATING INCOME
Net sales			4,524,083				2,456,209
Cost of sales			(2,891,322	)			(1,601,785	)
Gross margin			1,632,761				854,424
Administrative and selling expenses			(769,646	)			(489,801	)
Operating income			863,115				364,623
NON-OPERATING PROFIT
Financial income			26				—
Financial expenses			(82,206	)			(37,173	)
Monetary correction			(2,650	)			(24,684	)
Exchange differences			(34,909	)			(17,294	)
Non-operating income			(119,739	)			(79,151	)
Income before income tax			743,376				285,472
Income tax			(134,894	)			(48,531	)
NET INCOME			608,482				236,941

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

STATEMENT CASH FLOWS
(Unaudited)

		For the six months
		period ended June 30,
		2009				2008
		ThCh$				ThCh$
OPERATING ACTIVITIES
Net income			608,482				236,941
Principal non-cash charges / (credits) to income
Depreciation of fixed assets			1,855				1,254
Amortization of intangibles			24,765				19,971
Monetary correction			2,650				24,684
Exchange rate			34,909				17,294
Changes in assets that affect the cash flows:
Account receivables			103,671				(890,894	)
Inventories			748,775				(87,785	)
Accounts receivables from to related companies			(439,945	)			(112,214	)
Other assets			95,194				63,430
Changes in liabilities that affect the cash flows:
Accounts payable			285,762				163,320
Other liabilities			202,424				19,617
Net cash provided by operating activities			1,668,542				(544,382	)
FINANCING ACTIVITIES
Loans obtained			694,891				965,347
Payment of loans			(2,456,844	)			(312,657	)
Net cash provided by financing activities			(1,761,953	)			652,690
INVESTING ACTIVITIES
Purchase of fixed assets			(6,899	)			(1,371	)
Purchase of intangibles			(10,615	)			(50,202	)
Net cash used in investing activities			(17,514	)			(51,573	)
Net cash flows for period			(110,925	)			56,735
Inflation effect on cash and cash equivalents			(6,863	)			1,007
NET DECREASE IN CASH AND CASH EQUIVALENTS			(117,788	)			57,742
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD			264,001				55,350
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD			146,213				113,092

The accompanying Notes 1 to 16 are an integral part of these financial statements.

PHARMA GENEXX S.A.

NOTES TO THE FINANCIAL STATEMENTS

AT JUNE 30, 2009 AND 2008

The Company was created in public writing on September 22, 2006. Its objectives are importation, exportation, manufacturing through third parties and marketing generic medicines and medical and hospital consumables in the Republic of Chile and abroad. The Company also represents and negotiates with firms, companies and laboratories that manufacture and/or market these generic medicines and medical and hospital consumables.

It is a closely held corporation whose constitution was published in the Official Bulletin N^o 38,575 on September 28, 2006.

g)

Accounting period

The present financial statements cover the period between January 1 and June 30, 2009 and 2008.

h)

Preparation basis

The financial statements at June 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles in Chile.

i)

Monetary correction

Due to the negative variation of the Consumer Price Index (CPI) published by the National Institute of statistics during the period (-2.3%), the present financial statements have not been adjusted for the period covered from January 1, 2009 to June 30, 2009 (the variation for the period 2008 was 3.2%).

j)

Conversion basis

At June 30, 2009 and 2008 assets and liabilities in foreign currency and UF have been expressed according to the following:

		2009				2008
		$				$
US Dollar			531.76				526.05
UF			20,933.02				20,252.71

The corresponding exchange differences are accounted for in the results for the periods within the item Exchange Differences.

k)

Inventories

Inventories are presented at price-level restated costs and do not exceed their net realizable value.

f)

Allowance for doubtful accounts

Based on historical behaviour of the portfolio of clients, the Company maintains a provision for covering possible losses due to non recoverable accounts. This allowance is presented net of its corresponding asset accounts.

g)

Fixed assets

Fixed assets are stated at cost plus price-level restatements. Depreciation for each year has been calculated using the straight-line method, based on the estimated useful lives assigned to the assets.

h)

Intangibles

Intangibles correspond to medical registers and commercial brands, which are presented at their price-level restated cost net of amortization. Medical registers represent pharmaceutical and cosmetics rights paid to the Chilean Institute of Public Health (ISP) for the right of use of these products in Chile and abroad. This rights are amortized on straight-line basis over the period covered by the rights (5 years).

i)

Income tax and deferred tax

In agreement with current tax regulations, income tax is determined on accrual basis.

Deferred tax is based on all the temporary differences that originate from tax and accounting basis of assets and liabilities. This conforms to the Technical Bulletins N° 60, 69, 71 and 73 issued by the Chilean Institute of Accountants.

j)

Vacation

The annual cost of vacation has been accounted for in the financial statements on an accrual basis.

k)

Statement of cash flows

The Company has considered all available funds and investments that are easy to liquidate within 90 days as cash and cash equivalents.

All cash flows relating to the Company’s business, including interest paid, financial income and all other flows that are not defined as investing or financing have been included under operating activities. The operational concept used in this statement is wider than that considered in the statement of income.

l)

Derivative contracts

At the end of each year the Company maintains derivative contracts that cover the present and near future transactions. As of June 30, 2009 and 2008, these derivatives contracts have not been included within the local financial statements and their impact have been included as a reconciliation item in Note 16 f) to conform with US GAAP requirement.

NOTE 3 – MONETARY CORRECTION

The application of the monetary correction mechanism, as described in Notes 2 c) and d) is summarised as follows:

		Credit (charge)
		to financial
		statements
		2009				2008
		ThCh$				ThCh$
Update of:
Equity			—				(29,247	)
Current assets			(2,650	)			750
Intangibles			—				3,813
Total			(2,650	)			(24,684	)

NOTE 4 – EXCHANGE DIFFERENCES

At June 30, 2009 and 2008, the Company maintains assets and liabilities in dollars that generated the following exchange differences:

Item		Currency		2009				2008
				ThCh$				ThCh$
Assets (charge)/credit
Cash		Dollars			20,032				(12,587	)
Other assets		Dollars			(4,932	)			—
Total (charge)/credit					15,100				(12,587	)
Liabilities (charge)/credit
Imports in transit		Dollars			34,344				(2,000	)
Bank obligations		Dollars			(84,353	)			(2,707	)
Total (charge)/credit					50,009				(4,707	)
Total exchange rate difference					(34,909	)			(17,294	)

NOTE 5 – ACCOUNT RECEIVABLE

At June 30, 2009 and 2008, the details are the following:

		2009				2008
		ThCh$				ThCh$
Local clients			2,562,936				1,372,665
Allowance for doubtful accounts			(101,299	)			(9,620	)
Total accounts receivable			2,461,637				1,363,045