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MiLOC Group Ltd NEX:ML.P NEX Ordinary Share KYG613521031
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MiLOC Group Limited Audited results to 31 December 2018

31/05/2019 11:25am

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MiLOC Group Limited

31 May 2019

31 May 2019

MiLOC Group Limited

(the "Company" or the "Group")

Final audited results for the year ended 31 December 2018

MiLOC Group Limited (NEX: ML.P), the NEX Exchange quoted pharmaceutical and healthcare group, is pleased to announce its audited consolidated financial statements for the year ended 31 December 2018.

Key financial highlights:

   --       Revenue for the year ended 31 December 2018: HK$10,673,572 (2017: HK$11,618,098) 
   --       Loss for the year: HK$37,918,185 (2017: HK$17,269,618) 
   --       The basic loss per share for the year: HK$0.46 (2017: HK$0.24) 
   --       The Group's cash position as at 31 December 2018: HK$2,754,507 (2017: HK$3,891,331) 

Chairman's Statement

I am very pleased to report the 2018 financial year results for MiLOC Group Limited.

The nature of the Company's operations and its principal activities are to act as the holding company of a group engaged in (i) the provision of healthcare services, through and assisted by Traditional Chinese Medicine ("TCM") and medical products as well as therapies and consultations through a network of clinics in Hong Kong. And (ii) the sale and distribution of TCM healthcare and skincare products through wholesale outlets and TCM clinics, the Group's retail store in Hong Kong and other non-related TCM retail outlets, as well as directly to customers through the Company's online store.

The Group has, since its inception, invested considerable time and expense in establishing itself and introducing the concept of TCM, medical products and healthcare to the wider public. TCM is increasingly being recognised by both those providing Western medical treatment as well as the general public as a natural alternative to Western medicine and/or to work alongside Western medical treatment. The Board believes that the establishment of TCM products will make a very substantial positive contribution to the Group's revenue in a long run.

Review of significant activities

   (i)     Private Placings 

In 2018, the Group raised HK$6.1 million through private placings. The proceeds of these subscriptions have been applied towards several activities of the Company, including the TCM Plus range of skincare products and AKFS Plus range of hair products as mentioned above (Please refer to Note 20 for details of private placings).

   (ii)    Incorporation of Subsidiaries 

One of the Group's subsidiaries, MiLOC Pharmaceutical (HK) Limited ("MPHK") and Mr. Yuan Fei ("Mr. Yuan"), a third-party individual who is a resident of the People's Republic of China, have agreed to collaborate and set up a company in Guangzhou China for the distribution of MiLOC's TCM hair-care and skin-care products.

Further, one of the Group's shareholders, Mr. Liu Wei Hung, the founder member of Huge Port International Limited ("HPL"), a company incorporated in Hong Kong, has agreed to invest RMB10,000,000 into the new company in which he will own 33% of the issued share capital, under a Subscription Agreement entered into on 20 March 2018 between MPHK and HPL.

As a result, Richmond Group Limited ("RGL") was incorporated in Hong Kong having a share capital of HK$100 divided into 100 Ordinary Shares of HK$1 each and fully paid. RGL is a holding company that wholly owns Star Collaboration (Guangzhou) Limited which has been incorporated on 28 April 2018 in Guangzhou China with a registered capital of RMB10 million ("Star C"). RGL's shares are 57% held by MPHK, 33% held by HPL with the investment of RMB10,000,000 and 10% are held by Mr. Yuan who will contribute to the business with his experience and networks in China.

Financial review

   (i)     Revenue, gross profit and other revenue 

The Group's revenue for the year ended 31 December 2018 amounted to HK$10,673,572 which represented an 8.1% decrease as compared to the year ended 31 December 2017. It included sales of TCM skincare and haircare products that amounted to approximately HK$5,479,000 (2017: approximately HK$6,516,000) and revenue from its clinic operations that amounted to approximately HK$5,194,000 (2017: approximately HK$5,102,000).

The sales revenue of TCM skincare and hair care products in 2018 has been slow as the Group has spent a longer than expected time building up more sales channels for our TCM products both in Hong Kong and Mainland China and a bigger discount on skincare products has been offered to our major distributors. The revenue from the clinic operations increased slightly by 1.8% from the health seminars that were conducted to attract new patients since the middle of 2018.

The Group's gross profit and gross profit margin for the year ended 31 December 2018 amounted to HK$3,925,171 and 37% (2017: HK$5,233,207 and 45%) respectively. The decrease in gross profit margin was the result of a lower gross profit margin for the selling of TCM plus skincare products. The Group's other revenue for the year ended 31 December 2018 amounted to HK$270K, an increase of 6.8% compared to the year ended 31 December 2017.

   (ii)    Operating expenses 

The Group's distribution costs for the year ended 31 December 2018 amounted to HK$25,748,889 which increased by 213.96% as compared to the year ended 31 December 2017. It was mainly due to the royalty fee and commission fee related to AKFS Plus haircare brand for the year ended 31 December 2018 which amounted to approximately HK$20,114,000 and HK$3,900,000. The Group's administrative expenses for the year ended 31 December 2018 were approximately HK$15,087,000 compared to approximately HK$13,350,000 for the year ended 31 December 2017, an increase of 13.01% because of the incorporation of Star C in Guangzhou China.

   (iii)   Loss and loss per share 

The Group's loss for the year amounted to HK$37,918,185 (2017: HK$17,269,618). As a result, the Group's basic loss per share for the year was HK$0.46 (2017: HK$0.24).

The Directors do not recommend the payment of a dividend.

   (iv)   Balance sheet items 

The Group's tangible fixed assets as at 31 December 2018 amounted to HK$883,250 which mainly comprised of leasehold improvements, furniture and fixtures and office equipment. A decrease of approximately HK$9,000 over the balance as at 31 December 2017 mainly due to the depreciation of fixed assets and fixed assets acquired for the newly incorporated subsidiary, Star C for the year.

The Group's other intangible assets as at 31 December 2018 amounted to HK$3,928,571 which represented a decrease of approximately HK$357,000 compared to approximately HK$4,285,000 as at 31 December 2017 due to an amortisation for the year.

The Group's goodwill as at 31 December 2018 was valued at HK$46,127 with a decrease of approximately HK$440,000 compared with approximately HK$486,000 as at 31 December 2017 due to a recognised impairment for goodwill of a subsidiary.

The Group's inventories as at 31 December 2018 amounted to HK$5,724,696 with a decrease of approximately HK$1,642,000 over the balance as at 31 December 2017.

Inventories mainly consisted of TCM products and healthcare products.

The Group's trade payables as at 31 December 2018 amounted to HK$59K with a decrease of HK$310K over the balance as at 31 December 2017.

The Group's cash and cash equivalents decreased from HK$3,891K as at 31 December 2017 to HK$2,755K as at 31 December 2018. For details of these movements, please refer to the Group's cash flow statement included in the non-statutory group financial statements.

Outlook

In the year of 2018, the Group has invested more time and effort on sourcing and developing its channels of distribution in both Hong Kong and Mainland China. After actively meeting with different distributors, the Group has confirmed various distribution and sales channels including a number of online and offline sales platforms. One of the sales channels that we confirmed in 2019 includes an AKFS specialist store to be opened on tmall.com, one of the world's largest ecommerce website. Our Board anticipates that a significant amount of revenue will be generated through these channels in the coming years.

We will continue to source further development and investment opportunities and the Group is continuing to seek new business opportunities. The Group plans to launch the TCM body-care products which will be manufactured by third party OEM manufacturer in the foreseeable future.

The Group will continue to work towards its immediate and long term objective to expand its TCM based product portfolio by actively promoting the TCM Fast-Moving Consumer Goods ("FMCG") business while continuing to maintain and provide professional TCM services to our patients. By introducing a series of TCM FMCG product ranges, including skin-care, hair-care and body-care products under the brand name of "MiLOC", the Group believes that it will promote a TCM culture and products to different customers and eventually will lead to more business and positive revenue to the Group.

Finally, on behalf of the Board of Directors, I would like to extend our utmost appreciation to all our employees, partners, shareholders, customers, business associates and suppliers, for their continue support.

Chow Ching Fung

Chairman

The financial information in this announcement is derived from the Group's audited consolidated financial statements for the year ended 31 December 2018 which are available at the Company's website www.miloc.com.

The Directors of the Company accept responsibility for the contents of this announcement.

For further information, please contact:-

 
 
    MiLOC 
    ONG Ban Poh Michael - Chief Executive     Tel: +852 2110 4221 
    Officer 
    Ronnie CHOI - Chief Financial Officer 
  NEX Exchange Corporate Adviser             Tel: +44 (0) 20 7469 
   PETERHOUSE CAPITAL LIMITED                                0930 
   Guy Miller 
   Mark Anwyl 
 

MiLOC Group Limited

Consolidated Statement of Comprehensive Income

For the year ended December 2018

 
 
 
                                     Notes          2018          2017 
From continuing operations                           HK$           HK$ 
                                     -----  ------------  ------------ 
 
Revenue                                4      10,673,572    11,618,098 
                                     -----  ------------  ------------ 
Cost of sales                                (6,748,401)   (6,384,891) 
                                     -----  ------------  ------------ 
 
Gross profit                                   3,925,171     5,233,207 
                                     -----  ------------  ------------ 
 
Other revenue                          4         270,556       253,146 
                                     -----  ------------  ------------ 
Distribution costs                          (25,748,889)   (8,201,371) 
                                     -----  ------------  ------------ 
Administrative expenses                     (15,087,535)  (13,350,470) 
                                     -----  ------------  ------------ 
Foreign exchange gain/ (loss), 
 net                                           (596,250)     (282,949) 
                                     -----  ------------  ------------ 
 
Adjusted Operating loss                5    (37,236,947)  (16,348,437) 
                                     -----  ------------  ------------ 
Impairment loss for intangible 
 asset and goodwill                            (439,872)     (439,872) 
                                     -----  ------------  ------------ 
 
Operating loss                              (37,676,819)  (16,788,309) 
                                     -----  ------------  ------------ 
 
  Loss on disposal of subsidiaries              (20,099)             - 
                                     -----  ------------  ------------ 
Finance costs                          6       (227,447)     (481,311) 
                                     -----  ------------  ------------ 
Interest income                                    6,180             2 
                                     -----  ------------  ------------ 
Loss before taxation                        (37,918,185)  (17,269,618) 
                                     -----  ------------  ------------ 
Taxation                               7               -             - 
                                     -----  ------------  ------------ 
 
Loss for the for year                       (37,918,185)  (17,269,618) 
                                     -----  ------------  ------------ 
 
Other comprehensive income                             -             - 
                                     -----  ------------  ------------ 
Total comprehensive result 
 for the year                               (37,918,185)  (17,269,618) 
                                     -----  ------------  ------------ 
 
Attributable to: 
                                     -----  ------------  ------------ 
The equity holders of the parent 
 entity                                     (35,225,225)  (17,269,618) 
                                     -----  ------------  ------------ 
Non-controlling interests                    (2,692,960)             - 
                                     -----  ------------  ------------ 
Loss per share - from continuing 
 operations (HK$)                           (37,918,185)  (17,269,618) 
                                     -----  ------------  ------------ 
Basic                                 10          (0.46)        (0.24) 
-----------------------------------  -----  ------------  ------------ 
 

MiLOC Group Limited

Consolidated Statement of Financial Position

As of 31 December 2018

 
                                       As at 31 December  As at 31 December 
                                                    2018               2017 
                                Notes                HK$                HK$ 
                                -----  -----------------  ----------------- 
Assets 
                                -----  -----------------  ----------------- 
Non-current assets 
                                -----  -----------------  ----------------- 
Fixed assets                     11              883,250            892,342 
                                -----  -----------------  ----------------- 
Other intangible assets          12            3,928,571          4,285,714 
                                -----  -----------------  ----------------- 
Goodwill                         13               46,127            485,999 
                                -----  -----------------  ----------------- 
                                               4,857,948          5,664,055 
 -----------------------------  -----  -----------------  ----------------- 
Current assets 
                                -----  -----------------  ----------------- 
Inventories                      15            5,724,696          7,366,776 
                                -----  -----------------  ----------------- 
Trade receivables                16               59,528            369,824 
                                -----  -----------------  ----------------- 
Other receivables and 
 prepayments                     17            2,540,722            776,015 
                                -----  -----------------  ----------------- 
Cash and cash equivalents        19            2,754,507          3,891,331 
                                -----  -----------------  ----------------- 
                                              11,079,453         12,403,946 
 -----------------------------  -----  -----------------  ----------------- 
 
  Total assets                                15,937,401         18,068,001 
                                -----  -----------------  ----------------- 
 
Equity and liabilities 
                                -----  -----------------  ----------------- 
Equity 
                                -----  -----------------  ----------------- 
Share capital                    20              598,333            582,022 
                                -----  -----------------  ----------------- 
Share premium                                 71,417,033         65,027,334 
                                -----  -----------------  ----------------- 
Retained earnings                          (102,618,307)       (67,413,478) 
                                -----  -----------------  ----------------- 
Equity attributable to 
 the parent entity                          (30,602,941)        (1,804,122) 
                                -----  -----------------  ----------------- 
Non-controlling interests                      9,819,050                  - 
                                -----  -----------------  ----------------- 
Total equity                                (20,783,891)        (1,804,122) 
                                -----  -----------------  ----------------- 
 
Liabilities 
                                -----  -----------------  ----------------- 
Current liabilities 
                                -----  -----------------  ----------------- 
Trade payables                                   904,845            934,687 
                                -----  -----------------  ----------------- 
Other payables and accruals      21           28,274,069         11,459,155 
                                -----  -----------------  ----------------- 
Amounts due to directors         18            2,101,056          2,111,056 
                                -----  -----------------  ----------------- 
Borrowings                       22            5,441,322                  - 
                                -----  -----------------  ----------------- 
                                              36,721,292         14,504,898 
 -----------------------------  -----  -----------------  ----------------- 
 
Non-current liabilities 
                                -----  -----------------  ----------------- 
Borrowings                       22                    -          5,367,225 
                                -----  -----------------  ----------------- 
Total liabilities                             36,721,292         19,872,123 
                                -----  -----------------  ----------------- 
 
Total equity and liabilities                  15,937,401         18,068,001 
------------------------------  -----  -----------------  ----------------- 
 

MiLOC Group Limited

Consolidated Statement of Cash Flows

For the year ended 31 December 2018

 
                                            As at 31 December  As at 31 December 
                                     Notes               2018               2017 
                                                          HK$                HK$ 
                                     -----  -----------------  ----------------- 
 
OPERATING ACTIVITIES 
                                     -----  -----------------  ----------------- 
Cash used in operations               23         (19,007,603)       (10,845,052) 
                                     -----  -----------------  ----------------- 
 
INVESTING ACTIVITIES 
                                     -----  -----------------  ----------------- 
Purchase of fixed assets                            (900,071)            (2,400) 
                                     -----  -----------------  ----------------- 
Interest received                                       6,180                  2 
                                     -----  -----------------  ----------------- 
 
Net cash used in investing 
 activities                                         (893,891)            (2,398) 
                                     -----  -----------------  ----------------- 
 
FINANCING ACTIVITIES 
                                     -----  -----------------  ----------------- 
Issuance of shares                                  6,406,010         11,693,358 
                                     -----  -----------------  ----------------- 
Proceed received for incorporation 
 of a subsidiary                                   12,512,010                  - 
                                     -----  -----------------  ----------------- 
Interest paid                                       (153,350)                  - 
                                     -----  -----------------  ----------------- 
 
Net cash generated from 
 financing activities                              18,764,670         11,693,358 
                                     -----  -----------------  ----------------- 
 
Net increase in cash and 
 cash equivalents                                   1,136,824            845,908 
                                     -----  -----------------  ----------------- 
 
Cash and cash equivalents 
 at beginning of year                               3,891,331          3,045,423 
                                     -----  -----------------  ----------------- 
 
 
Cash and cash equivalents 
 at end of year                                     2,754,507          3,891,331 
                                     -----  -----------------  ----------------- 
 
 

MiLOC Group Limited

Notes to the non-statutory group financial statements

For the year ended 31 December 2018

   4.      revenue and segment information 

The Group is principally engaged in (i) the provision of healthcare services, through and by the application of Traditional Chinese Medicine ("TCM") and medical products as well as therapies and consultations through a network of clinics in Hong Kong, and (ii) the sale and distribution of TCM healthcare and skincare products via wholesale outlets and TCM clinics, the Group's retail store in Hong Kong via other non-related TCM retail outlets, as well as directly to customers through the Company's online store. Revenue recognised during the year can be analysed as follows:

 
 
 
                                     2018         2017 
                                      HK$          HK$ 
                              -----------  ----------- 
Revenue 
                              -----------  ----------- 
Sales of TCM healthcare 
 and skincare products          5,479,765    6,516,331 
                              -----------  ----------- 
Provision of TCM healthcare 
 services                       5,193,807    5,101,767 
                              -----------  ----------- 
                               10,673,572   11,618,098 
                              -----------  ----------- 
Other revenue 
                              -----------  ----------- 
Management fee                    264,000      240,000 
                              -----------  ----------- 
Others                              6,556       13,146 
                              -----------  ----------- 
                                  270,556      253,146 
                              -----------  ----------- 
Total revenue and other 
 revenue                       10,944,128   11,871,244 
----------------------------  -----------  ----------- 
 

32.92% of revenue (2017: 37.35%) generated from a Taiwan based distributor.

The Board of Directors has determined that the business should comprise two business segments, namely, (1) revenues from the sales of TCM healthcare and skincare products and (2) TCM healthcare business.

(a) Segment results, assets and liabilities

The business is organised into two segments as above. The financial information for each segment is provided to the executive management where the performance of each segment is reviewed and decisions on the allocation of resources to each segment are made.

The TCM Healthcare Services: this segment comprises the provision of TCM healthcare services, including consultations and TCM therapies. Currently, the Group's activities in this segment are carried out only in Hong Kong.

The Sale and Distribution of TCM Healthcare and Skincare Products: this segment operates wholesale outlets and TCM clinics, the Group's retail store in Hong Kong and other non-related TCM retail outlets, as well as the Company's online store. Currently, the Group's activities in this segment are carried out only in Hong Kong and China.

Segment assets include all tangible, intangible assets and current assets with the exception of deferred tax assets and other corporate assets. Segment liabilities include trade payables, other payables and accruals attributable to operating activities of the individual segments.

Revenue and expenses are allocated separately to each segment by reference to revenue generated by those segments and the expenses incurred by those segments. Segment 'other revenue and expenses' do not include the Group's interest income, finance costs and taxation expenses.

The table below explains the profit/(loss) from each segment and the contribution each makes towards the overall performance of the Group. In each case, finance costs, interest, taxation, head office and general expenses that are not specifically attributable to one or other of the segments, have been excluded.

Information regarding the Group's reportable segments as provided to the Group's senior executive management for the purposes of resource allocation and assessment of segment performance for the year ended 31 December 2018 and 2017 is set out below:

 
                                          For the year ended 31 December 2018 
                                                                                    Total 
                                 Sale of TCM Healthcare    TCM Healthcare 
                                  and Skincare Products          Services 
                               ------------------------  ----------------  -------------- 
                                                    HK$               HK$             HK$ 
                               ------------------------  ----------------  -------------- 
 
Revenue - External 
 sales                                        5,479,765         5,193,807      10,673,572 
                               ------------------------  ----------------  -------------- 
 
Cost of sales                               (4,159,943)       (2,588,458)     (6,748,401) 
                               ------------------------  ----------------  -------------- 
 
Gross profit                                  1,319,822         2,605,349       3,925,171 
                               ------------------------  ----------------  -------------- 
 
Other revenue                                       596           269,960         270,556 
                               ------------------------  ----------------  -------------- 
 
Distribution costs                         (25,694,086)          (54,803)    (25,748,889) 
                               ------------------------  ----------------  -------------- 
 
Administrative expenses                     (8,398,207)       (2,796,369)    (11,194,576) 
                               ------------------------  ----------------  -------------- 
 
 
Segment profit/(loss)                      (32,771,875)            24,137    (32,747,738) 
                               ------------------------  ----------------  -------------- 
 
General group operating 
 costs (including 
 professional fees 
 and directors remuneration)                                                  (4,489,209) 
                               ------------------------  ----------------  -------------- 
 
 
Operating loss                                                               (37,236,947) 
                               ------------------------  ----------------  -------------- 
 
Impairment loss for 
 goodwill                                                                       (439,872) 
                               ------------------------  ----------------  -------------- 
Loss on disposal 
 of subsidiaries                                                                 (20,099) 
                               ------------------------  ----------------  -------------- 
Finance costs                                                                   (227,447) 
                               ------------------------  ----------------  -------------- 
Interest income                                                                     6,180 
                               ------------------------  ----------------  -------------- 
Loss before taxation                                                         (37,918,185) 
                               ------------------------  ----------------  -------------- 
Taxation                                                                                - 
-----------------------------  ------------------------  ----------------  -------------- 
Loss for the year                                                            (37,918,185) 
                               ------------------------  ----------------  -------------- 
 
 
                                For the year ended 31 December 2018 
 
                                Sale of TCM     TCM Healthcare 
                             Healthcare and           Services        Total 
                          Skincare Products 
                       --------------------  -----------------  ----------- 
                                        HK$                HK$          HK$ 
                       --------------------  -----------------  ----------- 
 
 Additions of 
                       --------------------  -----------------  ----------- 
 
   *    Fixed assets                780,071            120,000      900,071 
                       --------------------  -----------------  ----------- 
 Depreciation of 
                       --------------------  -----------------  ----------- 
 
   *    Fixed assets                872,878             36,285      909,163 
                       --------------------  -----------------  ----------- 
 
 Segment assets                   9,386,108          6,549,163   15,935,271 
                       --------------------  -----------------  ----------- 
 Segment liabilities             26,666,571          4,184,268   30,850,839 
                       --------------------  -----------------  ----------- 
 
 
                                          For the year ended 31 December 2017 
 
                                 Sale of TCM Healthcare    TCM Healthcare 
                                  and Skincare Products          Services           Total 
                               ------------------------  ----------------  -------------- 
                                                    HK$               HK$             HK$ 
                               ------------------------  ----------------  -------------- 
 
Revenue - External 
 sales                                        6,516,331         5,101,767      11,618,098 
                               ------------------------  ----------------  -------------- 
Cost of sales                               (3,638,602)       (2,746,289)     (6,384,891) 
                               ------------------------  ----------------  -------------- 
Gross profit                                  2,877,729         2,355,478       5,233,207 
                               ------------------------  ----------------  -------------- 
Other revenue                                       673           252,162         252,835 
                               ------------------------  ----------------  -------------- 
Distribution costs                          (8,198,070)           (3,300)     (8,201,370) 
                               ------------------------  ----------------  -------------- 
Administrative expenses                     (7,322,424)       (2,610,097)     (9,932,521) 
                               ------------------------  ----------------  -------------- 
 
 
Segment loss                               (12,642,092)           (5,757)    (12,647,849) 
                               ------------------------  ----------------  -------------- 
 
General group operating 
 costs (including 
 professional fees 
 and directors remuneration)                                                  (3,700,587) 
                               ------------------------  ----------------  -------------- 
 
Operating loss                                                               (16,348,436) 
                               ------------------------  ----------------  -------------- 
 
Impairment loss 
 for goodwill                                                                   (439,872) 
                               ------------------------  ----------------  -------------- 
Finance costs                                                                   (481,311) 
                               ------------------------  ----------------  -------------- 
Interest income                                                                         2 
                               ------------------------  ----------------  -------------- 
Loss before taxation                                                         (17,269,617) 
                               ------------------------  ----------------  -------------- 
Taxation                                                                                - 
                               ------------------------  ----------------  -------------- 
Loss for the year                                                            (17,269,617) 
                               ------------------------  ----------------  -------------- 
 
 
                                For the year ended 31 December 2017 
 
                                Sale of TCM     TCM Healthcare 
                             Healthcare and           Services 
                          Skincare Products 
                                                                      Total 
                       --------------------  -----------------  ----------- 
                                        HK$                HK$          HK$ 
                       --------------------  -----------------  ----------- 
 
 Additions of 
                       --------------------  -----------------  ----------- 
 
   *    Fixed assets                      -              2,400        2,400 
                       --------------------  -----------------  ----------- 
 Depreciation of 
                       --------------------  -----------------  ----------- 
 
   *    Fixed assets              1,085,346             12,516    1,097,862 
                       --------------------  -----------------  ----------- 
 
 Segment assets                  16,123,375          1,896,226   18,019,601 
                       --------------------  -----------------  ----------- 
 Segment liabilities                628,138          3,995,372    4,623,510 
                       --------------------  -----------------  ----------- 
 

(b) Reconciliation of reportable segment assets and liabilities

 
                                       As at 31         As at 31 
                                  December 2018    December 2017 
                                            HK$              HK$ 
                                 --------------  --------------- 
Assets 
                                 --------------  --------------- 
Reportable segment assets            15,935,271       17,813,435 
                                 --------------  --------------- 
Unallocated head office 
 and corporate assets                     2,130          254,566 
                                 --------------  --------------- 
Consolidated total assets            15,937,401       18,068,001 
                                 --------------  --------------- 
Liabilities 
                                 --------------  --------------- 
Reportable segment liabilities       30,850,839        9,191,294 
                                 --------------  --------------- 
Unallocated head office 
 and corporate liabilities            5,870,453       10,680,829 
                                 --------------  --------------- 
Consolidated total liabilities       36,721,292       19,872,123 
                                 --------------  --------------- 
 

(c) Geographic information

In addition to this, the board also considers segmental information from a geographic perspective.

The vast majority of the Group's operations up to the date of the statement of financial position have been located in Hong Kong, therefore, significantly all of the Groups' revenue is attributable to Hong Kong.

   5.      ADJUSTED Operating loss 

Adjusted operating loss is arrived at after charging the following:

 
 
 
                                2018       2017 
                                 HK$        HK$ 
                           ---------  --------- 
 
Auditor's remuneration       294,315    300,323 
                           ---------  --------- 
Cost of inventories 
 expensed                  4,042,351  3,638,602 
                           ---------  --------- 
Depreciation of fixed 
 assets                      909,163  1,097,861 
                           ---------  --------- 
Inventories written 
 down                        117,592          - 
                           ---------  --------- 
Operating lease charges: 
 properties                3,585,810  2,614,714 
                           ---------  --------- 
Exchange loss / (gain), 
 net                         596,250    282,949 
                           ---------  --------- 
 
 
   6.      finance costs 
 
                2018       2017 
                 HK$        HK$ 
           ---------  --------- 
Interest   (227,447)  (481,311) 
           ---------  --------- 
           (227,447)  (481,311) 
           ---------  --------- 
 
 

The fair value movement on derivative and interest are generated from borrowings stated in note 22.

   7.      Taxation 

A reconciliation between tax expenses/(credit) and accounting profit at applicable tax rate is as follows:

 
                                      2018          2017 
                                       HK$           HK$ 
                               -----------  ------------ 
 
Loss before taxation            37,918,185    17,269,618 
                               -----------  ------------ 
 
Loss multiplied by standard 
 rate of corporation tax 
 in Hong Kong of 16.5%         (6,256,500)   (2,849,487) 
                               -----------  ------------ 
Effect of: 
                               -----------  ------------ 
Items not deductible for 
 tax purposes                      641,229       510,126 
                               -----------  ------------ 
Items deductible for tax 
 purposes                         (30,287)      (17,462) 
                               -----------  ------------ 
Losses carried forward           5,645,558     2,356,823 
                               -----------  ------------ 
                                         -             - 
 ----------------------------  -----------  ------------ 
 

The amount of losses that are available but in respect of which no deferred tax asset has been recognised amounted to HK$67,698,743 (2017: HK$41,577,434). No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profit streams.

   8.    Staff Costs (excluding directors' emoluments) and employee benefits 
 
 
                                2018        2017 
                                 HK$         HK$ 
                           ---------  ---------- 
 
Salaries, wages and 
 other benefits            3,793,663   3,283,959 
                           ---------  ---------- 
Contributions to defined 
 contribution plan           250,394     155,184 
                           ---------  ---------- 
                           4,044,057   3,439,143 
                           ---------  ---------- 
 
   9.     COMPENSATION OF KEY MANAGEMENT PERSONNEL 
 
 
                                       2018       2017 
                                        HK$        HK$ 
                                  ---------  --------- 
Salaries and other short-term 
 benefits: 
                                  ---------  --------- 
-Salaries and allowances          3,360,000  3,360,000 
                                  ---------  --------- 
-Retirement scheme contribution      30,000     30,000 
                                  ---------  --------- 
                                  3,390,000  3,390,000 
                                  ---------  --------- 
 
 

The Directors of the Company and CFO of the Group represent the Group's key management personnel. Each of Messrs Professor Chow Ching Fung, Ong Ban Poh Michael, Ow Kian Jing Dennis, Ivor Colin Shrago each entered into a service agreement with the Company for an initial term commencing from 20 December 2010 to 19 December 2011.

The service agreements have since been renewed on a yearly basis.

   10.   Earning per share - Basic 

Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.

 
 
 
                                      2018             2017 
                                       HK$              HK$ 
                            --------------  --------------- 
 
Losses attributable to 
 equity holders of parent 
 entity                       (35,225,225)     (17,269,618) 
                            --------------  --------------- 
 
Number of shares 
                            --------------  --------------- 
Weighted average number 
 of ordinary shares in 
 issue                          76,797,868       72,309,826 
                            --------------  --------------- 
 
Loss per share                       0. 46            0. 24 
                            --------------  --------------- 
 
   11.   Fixed assets 
 
                                  Leasehold    Furniture  Office equipment 
                               improvements   & fixtures                          Total 
                                        HK$          HK$               HK$          HK$ 
                              -------------  -----------  ----------------  ----------- 
Cost 
 At 1 January 2017                2,308,039       80,087           420,600    2,808,726 
                              -------------  -----------  ----------------  ----------- 
Additions                                 -        2,400                 -        2,400 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2017                             2,308,039       82,487           420,600    2,811,126 
                              -------------  -----------  ----------------  ----------- 
 
 
Accumulated Depreciation 
 At 1 January 2017                  463,269       66,634           291,020      820,923 
                              -------------  -----------  ----------------  ----------- 
Charge for the 
 year                             1,064,106        3,869            29,886    1,097,861 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2017                             1,527,375       70,503           320,906    1,918,784 
                              -------------  -----------  ----------------  ----------- 
 
Net book value 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2017                               780,664       11,984            99,694      892,342 
                              -------------  -----------  ----------------  ----------- 
 
 
Cost 
 At 1 January 2018                2,308,039       82,487           420,600    2,811,126 
                              -------------  -----------  ----------------  ----------- 
Written off                               -            -          (20,918)     (20,918) 
                              -------------  -----------  ----------------  ----------- 
Additions                           477,368      100,622           322,081      900,071 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2018                             2,785,407      183,109           721,763    3,690,279 
                              -------------  -----------  ----------------  ----------- 
 
 
  Accumulated Depreciation 
  At 1 January 2018               1,527,375       70,503           320,906    1,918,784 
                              -------------  -----------  ----------------  ----------- 
Written off                               -            -          (20,918)     (20,918) 
                              -------------  -----------  ----------------  ----------- 
Charge for the 
 year                               821,397        4,200            83,566      909,163 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2018                             2,348,771       74,703           383,554    2,807,029 
                              -------------  -----------  ----------------  ----------- 
 
Net book value 
                              -------------  -----------  ----------------  ----------- 
At 31 December 
 2018                               436,636      108,406           338,209      883,250 
                              -------------  -----------  ----------------  ----------- 
 
   12.   OTHER Intangible assets 
 
 
 
                              Patent of Rorrico 
                                                     Total 
                                            HK$        HK$ 
                            -------------------  --------- 
Cost 
                            -------------------  --------- 
At 1 January 2017                     5,000,000  5,000,000 
                            -------------------  --------- 
At 31 December 2017                   5,000,000  5,000,000 
                            -------------------  --------- 
 
Accumulated amortisation 
                            -------------------  --------- 
At 1 January 2017                       357,143    357,143 
                            -------------------  --------- 
Amortisation for the 
 year                                   357,143    357,143 
                            -------------------  --------- 
At 31 December 2017                     714,286    714,286 
                            -------------------  --------- 
 
Net book value 
                            -------------------  --------- 
At 31 December 2017                   4,285,714  4,285,714 
                            -------------------  --------- 
 
Cost 
                            -------------------  --------- 
At 1 January 2018                     5,000,000  5,000,000 
                            -------------------  --------- 
At 31 December 2018                   5,000,000  5,000,000 
                            -------------------  --------- 
 
Accumulated amortisation 
                            -------------------  --------- 
At 1 January 2018                       714,286    714,286 
                            -------------------  --------- 
Amortisation for the 
 year                                   357,143    357,143 
                            -------------------  --------- 
At 31 December 2018                   1,071,429  1,071,429 
                            -------------------  --------- 
 
Net book value 
                            -------------------  --------- 
At 31 December 2018                   3,928,571  3,928,571 
                            -------------------  --------- 
 

Patent of Rorrico:

In 2010, the Group acquired the intellectual property rights to Rorrico, a TCM for the treatment of influenza viruses, including the Influenza A virus and its sub-type virus, pandemic Influenza A (H1N1) or Swine flu. On 27 July 2011, the State Intellectual Property Office of the PRC granted the Rorrico Paten (the "Patent"). The Group does not generate revenue from the patent as it is dependent on an outbreak of Swine flu occurring.

Previously the Patent was not amortised as it was considered to be under development. On the basis of medical research performed in the year to 31 December 2016 on the Rorrico patent that proved its ability as a TCM for the treatment of the influenza virus, management began to amortise the patent over its remaining useful life of 14 years. Initial valuations and valuations for subsequent impairment tests are based on established market multiples or risk-adjusted future cash flows discounted using appropriate interest rates. These future cash flows are based on business forecasts and are therefore inherently judgmental. Future events could cause the assumptions used in these impairment reviews to change with a consequent adverse effect on the future results of the Group.

The Patent is reviewed annually for any indication of impairment applying a value in use methodology and assumes an outbreak of Swine flu in the following period, generally using five year pre-tax cash flow forecasts with a terminal value calculation and a discount rate of 25%, adjusted where appropriate for country-specific risks. The main assumptions include future sales price and volume growth, product contribution and the future expenditure required to maintain the product's marketability. These assumptions are based on past experience and are reviewed as part of management's budgeting and strategic planning cycle for changes in market conditions and sales erosion through competition. The terminal growth rate applied of 3% is management's estimates of future long-term average growth rate of the relevant markets. In each case the valuations indicate sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of the Patent.

As an outbreak of Swine flu cannot be predicted, management also have regard to the market activity in other TCM patents, on the basis of this market research they have concluded the patent has a value in excess of its carrying value.

   13.   goodwill 
 
                                  2018        2017 
                                   HK$         HK$ 
 
Balance at the beginning 
 of the year                   485,999     925,871 
                             ---------  ---------- 
Impairment for the year      (439,872)   (439,872) 
                             ---------  ---------- 
Balance at the end of the 
 year                           46,127     485,999 
                             ---------  ---------- 
 

Impairment tests for cash-generating units (CGU) continuing goodwill

The carrying value of Goodwill relating to the clinic at 31 December 2017 was HK$485,999, during the year the recoverable amount of this asset was assessed to be HK$46,127 and the assets associated with this cash generating unit have been written down to HK$46,127 on the basis of the value in use calculation the Goodwill allocated to the store was written off during the period. Cash flows are extrapolated using the estimated rates stated below. These calculations use cash flow projections based in financial budgets approved by management covering a one-year period. Cash flow projections are extrapolated up to a period of 5 years by using the estimated rates stated below. The growth rate does not exceed the long term average growth rate for the business in which the CGU operates. A sensitivity analysis has been performed on these calculations in respect of a decrease of growth rates. Further impairments would be required if the margin and discount rates used in the model were altered. If the margin was decreased by two percentage points the Goodwill would be fully impaired. If the discount rate was increased by two percentage points a further impairment of HK$51,454 would be required.

Key assumptions used for value-in use calculation are as follows:

 
                     2018   2017 
Gross margin          47%    47% 
                     ----   ---- 
Growth rate            0%     0% 
 Discount rate        17%    17% 
                     ----   ---- 
 
   14.   interest in subsidiaries 

As at the date of this report, the Company has the following subsidiary undertakings

which make up the Group:

 
Name of subsidiary                     Date and          %     Acquired from:      Principal 
                                        place of                                    activities 
                                        incorporation 
 
Interests held directly 
 by the Company: 
                                       --------------  ------  ------------------  ------------------------------ 
Cash generating 
 unit: 
                                       --------------  ------  ------------------  ------------------------------ 
MiLOC Pharmaceutical                   20 November     100%    Professor           TCM sales 
 Limited                                2009, BVI               Chow Ching          and distribution 
                                                                Fung 
                                       --------------  ------  ------------------  ------------------------------ 
MiLOC Medical Limited                  16 March        100%    Professor           TCM Clinics 
                                        2010, BVI               Chow Ching 
                                                                Fung 
                                       --------------  ------  ------------------  ------------------------------ 
Non-cash generating 
 unit: 
                                       --------------  ------  ------------------  ------------------------------ 
MiLOC Biotechnology                    6 November      100%    Professor           Research and 
 Limited                                2009, BVI               Chow Ching          development 
                                                                Fung and ONG, 
                                                                Ban Poh Michael 
                                       --------------  ------  ------------------  ------------------------------ 
 
            Interests held indirectly 
             by the Company: 
                                       --------------  ------  ------------------  ------------------------------ 
Cash generating                         9 March 2011,   100%    N/A 
 unit:                                   HK                                          Retailing 
 MiLOC Pharmaceutical                                                                and wholesaling 
 (HK) Ltd                                                                            of healthcare 
                                                                                     and skincare 
                                                                                     and related 
                                         15 February     100%    N/A                 products 
                                         2011, BVI 
 MiLOC Clinics Limited                                                               Receipt of 
                                         24 January      100%    N/A                 royalty fee 
                                         2011, HK                                    from clinics 
 MiLOC Medical Limited 
                                         25 September    100%    Golden Ace          Provision 
                                         2007, HK                Holdings Limited    of medical 
 MiLOC Medical Jor1                                                                  services 
 Limited 
                                         18 October      100%    Golden Ace          Provision 
                                         2010, HK                Holdings Limited    of Chinese 
 MiLOC Store Limited                                                                 medical services 
 
                                                                                     Retailing 
                                         15 November,    100%    N/A                 and wholesaling 
                                         2016, PRC                                   of healthcare 
                                                                                     and related 
                                         28 April,                                   products 
                                         2018, PRC       57%     N/A 
 Star Collaboration                                                                  Retailing 
 (Guangzhou) Limited                                                                 and wholesaling 
                                                                                     of haircare 
                                                                                     products 
 
                                                                                     Retailing 
                                                                                     and wholesaling 
                                                                                     of haircare 
                                                                                     products 
                                       --------------  ------  ------------------  ------------------------------ 
Non-cash generating                     3 December      100%    He Yu and                       Holding company 
 unit:                                   2009,                   Professor                       of intellectual 
 Smart Falcon Limited                    BVI                     He Zhong Sheng                  property rights, 
                                                                                                 including 
                                                                                                 the Rorrico 
                                                                                                 patent 
                                         28 September    100%    LEE Mun Keat 
                                         2010, BVI                                               Investment 
 Golden Ace Holdings                                                                             holding company 
 Limited                                 9 June 2011,    100%    N/A 
                                         Macau                                                   Retailing, 
 MiLOC Pharmaceutical                                                                            wholesaling, 
 (Macau) Limited                                                                                 import and 
                                                                                                 export of 
                                         18 January      57%     ONG, Ban Poh                    TCM products 
                                         2018, HK                Michael 
 Richmond Group Limited                                                                          Investment 
                                                                                                 holding company 
                                       --------------  ------  ------------------  ------------------------------ 
 

On 18 January 2018, the Company acquired 57% share of a subsidiary Richmond Group Limited.

On 28 April 2018, the Company established a subsidiary Star Collaboration (Guangzhou) Limited.

   15.   Inventories 

The inventories as at 31 December 2018 and 2017 are as follows.

 
                               2018       2017 
                                HK$        HK$ 
                          ---------  --------- 
 
Finished goods            5,724,696  7,366,776 
                          ---------  --------- 
Provision for the year            -          - 
                          ---------  --------- 
 
                          5,724,696  7,366,776 
 -----------------------  ---------  --------- 
 
   16.   Trade receivables 

All balances are aged within one year and are expected to be recovered within one year. No amounts are past due or impaired.

   17.   Other receivables and prepayment 
 
                            2018      2017 
                             HK$       HK$ 
                      ----------  -------- 
 
 Deposits paid           935,475   622,950 
                      ----------  -------- 
 Other receivables     1,574,327   153,065 
                      ----------  -------- 
 Prepayment               30,920         - 
                      ----------  -------- 
 
                       2,540,722   776,015 
 -------------------  ----------  -------- 
 

Others receivables and Prepayment are expected to be recovered or recognised as expenses within one year. No amounts are past due or impaired.

   18.    related party transactions 

Transactions between the Group and its related parties as at 31 December 2018 and 2017 were as follow:

 
                                2018       2017 
                                 HK$        HK$ 
                           ---------  --------- 
 
Amount due to directors    2,101,056  2,111,056 
-------------------------  ---------  --------- 
 

The above amounts are due to director of Company subsidiaries. The amounts are unsecured, interest free and repayable on demand.

Apart from the above amount from/to the related companies, significant transactions between the Group and its related parties for the 31 December 2018 and 2017 were as follows:

 
 
                                 2018     2017 
                                  HK$      HK$ 
                              -------  ------- 
 
Purchases from Green Health 
 Supplement International 
 Company                      461,585  364,753 
                              -------  ------- 
 

At 31 December 2018, the trade payable to Green Health Supplement International Company is HK$438,669 (2017: HK$482,301)

Professor Chow Ching Fung, executive director, is a partner in Green Health Supplement International Company, a partnership company.

   19.   Cash and cash equivalents 

Cash and cash equivalents as at 31 December 2018 and 2017 comprise:

 
                                 2018       2017 
                                  HK$        HK$ 
                            ---------  --------- 
 
Cash at bank and in hand    2,754,507  3,891,331 
                            ---------  --------- 
 
 
   20.   SHARE CAPITAL 
 
                                               2018          2017 
                                                HK$           HK$ 
                                       ------------  ------------ 
Authorised, 
                                       ------------  ------------ 
      100,000,000 ordinary shares 
       of US$0.001 each                     780,000       780,000 
                                       ------------  ------------ 
 
        Allotted and fully paid: 
        No. of shares: 
        At the beginning and end of 
        the year                         74,777,903    70,815,289 
                                       ------------  ------------ 
      Issuance of shares                  2,091,117     3,962,614 
                                       ------------  ------------ 
      At the end of the year             76,869,020    74,777,903 
                                       ------------  ------------ 
      Amount: 
       At the beginning and end of 
       the year                             582,022       551,114 
                                       ------------  ------------ 
      Issuance of shares                     16,311        30,908 
                                       ------------  ------------ 
      At the end of the year                598,333       582,022 
                                       ------------  ------------ 
 

On 14, 15, 22 and 27 December 2017, the Company entered into a total of four agreements to issue 1,684,551 new US$0.001 ordinary shares at the placing price of 28.5p per share to raise approximately HK$5,106,010. The Company also agreed to pay a referral fee of 5% of the fundraising amount to consultants of the Company by allotting and issuing a total of 78,283 new ordinary shares of US$0.001 each at a price of 30.0p per share. These placings and allotments were completed during January 2018.

On 26 February 2018, the Company entered into an agreement to issue 313,396 new US$0.001 ordinary shares at the placing price of 28.5p per share to raise approximately HK$1,000,000. The Company also agreed to pay a referral fee of 5% of the fundraising amount to a consultant of the Company by allotting and issuing a total of 14,887 new ordinary shares of US$0.001 each at a price of 30.0p per share. These placings and allotments were completed during March 2018.

21. Other payables and accruals

 
                                      2018         2017 
                                       HK$          HK$ 
                                ----------  ----------- 
 
Contract liabilities               849,229      381,727 
                                ----------  ----------- 
Accruals and other creditors    27,424,840   11,077,428 
                                ----------  ----------- 
                                28,274,069   11,459,155 
 -----------------------------  ----------  ----------- 
 

Significant changes in the contract liabilities balance during the period are as follows.

 
                                           2018      2017 
                                            HK$       HK$ 
                                        -------  -------- 
 
Revenue recognised that was included 
 in the contract liability balance 
 at the beginning of the year           222,047   162,754 
                                        -------  -------- 
Increases due to cash received, 
 excluding amounts recognised 
 as revenue during the year             689,549   233,708 
                                        -------  -------- 
 
   22.   BOrrowings 
 
                                       2018        2017 
                                        HK$         HK$ 
                                  ---------  ---------- 
Due within one year               5,441,322           - 
                                  ---------  ---------- 
                                  5,441,322           - 
                                  ---------  ---------- 
 
Due are more than one year but 
 less than two years                      -   5,367,225 
                                  ---------  ---------- 
                                          -   5,367,225 
 -------------------------------  ---------  ---------- 
 

On 19th July 2016 the Company issued a redeemable convertible loan note. The key terms are as follows:

   Issue date :             19 July 2016 
   Maturity date :        19 January 2018 
   Interest rate :     0% for first 12 months, 6% thereafter 

On 29th December 2017, the Company revised principal terms are as follows:

   Maturity date :        19 January 2019 
   Interest rate :     7.2% per annum 

On 19th January 2019, the Company revised principal terms are as follows:

   Maturity date :        19 January 2020 
   Interest rate :     8% per annum 

The conversion right is contingent on whether the company achieves a listing on the main market of the London Stock Exchange. If this is achieved then the note holder can convert the principal at a 20% discount to the opening share price on the main market.

On the basis that the contingent derivative cannot be estimated reliably the company has present valued the cash flows inherent in the loan at the market rate of interest of 9% and assigned the residual value to the derivative instrument. At recognition the fair value of the derivative element was HK$84k.

At 31 December 2017 and 2018 management considered listing was unlikely to be achieved and therefore the fair value of the derivative was GBPnil. The fair value movement on the derivative is shown as part of finance costs in the year ended 31 December 2017. The interest on the loan to 31 December 2018 was HK$227k (2017 HK$481k).

   23.   Cash used in operations 

Reconciliation of loss before taxation to cash used in operations:

 
                                              2018           2017 
                                               HK$            HK$ 
                                      ------------  ------------- 
 
Loss before taxation                  (37,918,185)   (17,269,618) 
                                      ------------  ------------- 
Adjustments: 
                                      ------------  ------------- 
Depreciation of fixed assets               909,163      1,097,861 
                                      ------------  ------------- 
Amortisation of intangible 
 assets                                    357,143        357,143 
                                      ------------  ------------- 
Impairment loss for intangible 
 asset and goodwill                        439,872        439,872 
                                      ------------  ------------- 
Loss on disposal of subsidiaries            20,396              - 
                                      ------------  ------------- 
Interest income                            (6,180)            (2) 
                                      ------------  ------------- 
Interest expenses                          227,447        481,311 
                                      ------------  ------------- 
 
Operating cash flow before 
 changes in working capital           (35,970,344)   (14,893,433) 
                                      ------------  ------------- 
Decrease in inventories                  1,642,080        557,182 
                                      ------------  ------------- 
Decrease / (increase) in 
 trade receivables                         310,296      (134,076) 
                                      ------------  ------------- 
(Increase) / decrease in 
 other receivables and prepayments     (1,764,707)        123,158 
                                      ------------  ------------- 
Decrease in trade payables                (29,842)    (5,400,846) 
                                      ------------  ------------- 
Increase in other payables 
 and accruals                           16,814,914      8,903,273 
                                      ------------  ------------- 
Decrease in amount due to 
 shareholders                             (10,000)          (310) 
                                      ------------  ------------- 
Cash used in operations               (19,007,603)   (10,845,052) 
                                      ------------  ------------- 
 

Reconciliation of liabilities arising from financing activities:

 
                                                        Fair value 
                      31 December    Interest           movement /    31 December 
               Note          2017        paid     interest accrued           2018 
 Borrowings    22       5,367,225   (153,350)              227,447      5,441,322 
              -----  ------------  ----------  -------------------  ------------- 
                                                        Fair value 
                      31 December    Interest           movement /    31 December 
               Note          2016        paid     interest accrued           2017 
              -----  ------------  ----------  -------------------  ------------- 
 Borrowings    22       4,885,914           -              481,311      5,367,225 
              -----  ------------  ----------  -------------------  ------------- 
 
   24.   COMMITMENTS UNDER OPERATING LEASES 

The Group had future aggregate minimum lease payments under non-cancellable operating leases respect to office premises as follows:

 
                                      2018       2017 
                                       HK$        HK$ 
                                ----------  --------- 
 
Not later than one year          3,366,486  1,532,100 
                                ----------  --------- 
Later than one year but less 
 than five years                ,5,511,148    295,156 
                                ----------  --------- 
                                 8,877,634  1,827,256 
 -----------------------------  ----------  --------- 
 
   25.   COMMITMENTS 

The Group had future aggregate minimum payments under royalty agreements as follows:

 
                                       2018  2017 
                                        HK$   HK$ 
                                -----------  ---- 
 
Not later than one year          60,540,480     - 
                                -----------  ---- 
Later than one year but less 
 than five years                 45,405,360     - 
                                -----------  ---- 
                                105,945,840     - 
 -----------------------------  -----------  ---- 
 
   26.   FINANCIAL ASSETS AND RISK 

The Group has exposure to credit risk, liquidity risk, interest rate risk and foreign currency risk as a result of its operations. The Board of Directors has overall responsibility for establishing and monitoring the Group's risk management policies and processes. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

All treasury transactions are reported to and approved by the Board. The Group does not enter into or trade financial instruments for speculative purposes.

The principal risks to which the Group is exposed are market risk including currency risk, credit risk, liquidity risk and interest rate risk.

The Group has the following categories of financial assets and liabilities at the balance sheet date:

 
                                             2018                  2017 
                                              HK$                   HK$ 
                             --------------------  -------------------- 
 
                             Loan and receivables  Loan and receivables 
                             --------------------  -------------------- 
Financial assets 
                             --------------------  -------------------- 
Trade receivables                          59,528               369,824 
                             --------------------  -------------------- 
Other receivables                       1,574,327               153,065 
                             --------------------  -------------------- 
Cash and cash equivalents               2,754,507             3,891,331 
                             --------------------  -------------------- 
                                        4,388,362             4,414,220 
 --------------------------  --------------------  -------------------- 
 
                                  Other financial       Other financial 
                                      liabilities           liabilities 
                             --------------------  -------------------- 
Financial liabilities 
                             --------------------  -------------------- 
Trade payables                            904,845               934,687 
                             --------------------  -------------------- 
Borrowings                              5,441,322             5,367,225 
                             --------------------  -------------------- 
Amount due to directors                 2,101,056             2,111,056 
                             --------------------  -------------------- 
Accruals                               27,424,217             6,056,428 
                             --------------------  -------------------- 
                                       35,871,440            14,469,396 
 --------------------------  --------------------  -------------------- 
 

The carrying value of financial instruments included in the above table approximates to their fair value.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations and is primarily attributable to its trade receivables. Any impairment of doubtful receivables is estimated by the Group's management based on prior experience and the current economic environment. The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk at the reporting date was:

 
                                  2018       2017 
                                   HK$        HK$ 
                             ---------  --------- 
 
Trade receivables               59,528    369,824 
                             ---------  --------- 
Other receivables            1,574,327    153,065 
                             ---------  --------- 
Cash and cash equivalents    2,754,507  3,891,331 
                             ---------  --------- 
                             4,388,362  4,414,220 
 --------------------------  ---------  --------- 
 

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit rating agencies.

The Group has no significant concentration of credit risk.

Market risk

Market risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market prices. The principal ways in which the Group is exposed to such fluctuations are through currency risk and interest rate risk.

Interest rate risk

The Group is exposed to interest rate risk on cash and cash equivalents. Assuming that all other variables remain constant, an increase of 100 basis points in interest rates would have increased equity and profit and loss by HK$27,545 (2017: HK$38,913). A corresponding decrease would have an equal but opposite effect.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. See going concern assessment within the Directors' Report. The contractual cash flows of financial liabilities are considered to be equal to their carrying amount in the balance sheet, and the maturities are all expected to be within one year.

 
                                   2018       2017 
                                    HK$        HK$ 
                             ----------  --------- 
Financial liabilities due 
 within one year 
                             ----------  --------- 
Trade payables                  904,845    934,687 
                             ----------  --------- 
Amount due to directors       2,101,056  2,111,056 
                             ----------  --------- 
Accruals                     27,424,217  6,056,428 
                             ----------  --------- 
Borrowings                    5,441,322          - 
                             ----------  --------- 
                             35,871,440  9,102,171 
 --------------------------  ----------  --------- 
 

The settlement of the financial liabilities due within one year is reliant on future Company fund raising, the sale of inventory and the collection of trade receivables.

The group has a borrowing of HK$5,441,322 that is due for repayment in January 2020, the groups cash flow projections show that they will have adequate funds available at the repayment date even if future funding raising does not occur. See basis of preparation section of note 2 for more details regarding the cashflow projections and going concern.

Currency risk management

The Group is exposed to currency risk on financial assets of HK$2,599,537 (2017: HK$323,406) that are denominated in currencies other than Hong Kong dollars.

The Group operates mainly out of Hong Kong and its operations are denominated in Hong Kong dollar and a majority of the assets and liabilities are in that currency. The only fluctuation to the reporting currency of HK$ would be in relation to the translation at the year end to the reporting currency.

The Group has used a sensitivity analysis technique that measures the estimated change to the income statement and equity of a 10% strengthening and weakening in HK$ against all other currencies, with all other variables remaining constant. The sensitivity analysis includes only outstanding foreign currency denominated assets and liabilities and adjusts their translation at the balance sheet date for a 10% change in the applicable currency rate.

Under this assumption, with a 10% strengthening or weakening of HK$ against all exchange rates, loss before taxation would have increased or decreased respectively by US$259,953 (2017: US$32,340).

   27.   CAPITAL MANAGEMENT 

The Board's policy is to manage its overall capital so as to ensure that companies within the Group continue to operate as going concerns and to maintain sufficient financial flexibility to undertake planned productions and investments.

The Groups' capital structure currently represents the equity attributable to the shareholders together with the cash and cash equivalents. The structure is reviewed on a quarterly basis to ensure that an appropriate level of gearing is being used.

   28.   POST BALANCE SHEET EVENT 

Strategic Cooperation Agreement

On 4 January 2019, Star Collaboration Guangzhou Limited ("Star C"), one of the Group's subsidiaries, has entered into a strategic cooperation agreement (the "Agreement") with China Post Advertising Co., Ltd. ( ), a company incorporated in China ("China Post Advertising").

Under the agreement, the parties agreed actively to cooperate in advertising, marketing and sales of Aaron Kwok's exclusive brand AKFS+ hair care products ("AKFS+ products") and all future celebrities co-branded products ("Products"). The parties also agreed to design a series of limited edition post cards of the celebrities to be issued and sold through China Post. Advertising

Post Advertising has agreed to share its channels, media and data resources with MiLOC. Further, China Post Advertising will also assist in the collaboration for the distribution channels with a joint venture between China Post Group and TOM Group Limited known as "ULE.COM". ULE.COM is a unique and innovative shopping service platform that combines high-end online shopping and offline retail services with online shop and franchised convenience shops. The Agreement provides for a strategic cooperation for brand promotion and sales of the Products.

Convertible Bond

On 19 January 2019, the Company entered into an extension agreement for the Convertible Bond. The maturity date extended to 19 January 2020 and the coupon rate increased from seven point two percent (7.2%) per annum to eight percent (8%) per annum. All other terms remain unchanged. Further details are disclosed in note 22.

Significant Endorsement Agreement and Commission Agreement

On 21 January 2019, one of the Group's wholly owned subsidiary, MiLOC Pharmaceutical (HK) Limited ("MPHK"), entered into agreements with Koo Tin-lok (otherwise Louis Koo) , a widely known actor and entertainer in Hong Kong (the "Artist") to collaborate and work together to create a new brand of a range of TCM body care and body wash products, which contain traditional Chinese herbal ingredients (the "Body-care Products"). The Parties also agreed to cooperate in the production, design, marketing and distribution of the Body-care Products.

One of the agreements is an Endorsement Agreement with Master Kingdom Limited ("the Artist's Management Company") ("the Parties"). The Endorsement Agreement shall when commence on the date when the Body-care Products become available for purchase in the open market within the territories stipulated by the Endorsement Agreement ("Launch Date"), which is to be agreed by all parties in writing, and will continue for a period of three years after the Launch Date ("the Term"). The Artist's Management Company grants to MPHK the exclusive and unlimited right and license to use and exploit the name and collaboration of the Artist in all forms of media, in connection with the endorsement, sales, advertising and promotion of the Body-care Product. The Artist's Management Company has undertaken to procure that the Artist will provide such services as may be required to facilitate such use and exploitation.

MPHK has also entered into a Commission agreement with the agents responsible for the introduction of the Artist's Management Company and negotiating the terms of the Endorsement Agreement. The Commission Agreement shall come into force on the Launch Date or (if different) such other date as shall be agreed between the parties in writing.

The proposed Chinese and English logos in respect of the Body-care Products have been confirmed by the Parties. Applications for registration of the Chinese and English Trademarks have been made in Mainland China and Hong Kong SAR. The bottling design and ingredients of the Body-care Products are at the final stage. The Company will also be pursuing marketing activities and partnerships to ensure maximum media exposure of the products, which includes both online and offline marketing.

The Company is anticipating the Product to be launched soon in 2019.

Private Placings

In February 2019, the Company entered into placing agreements with three individual shareholders to issue 210,801 new US$0.001 ordinary shares at a placing price of 30p per share to raise approximately HK$661,859. The shareholders are arranging trading accounts to be opened in London to receive the placing shares, therefore the placing and allotment are expected to be complete on or before 30 June 2019.

On 4 May 2019, the Company entered into placing agreements with two individual shareholders to issue 1,170,528 new US$0.001 ordinary shares at the placing price of 28.5p per share to raise approximately HK$3,542,100. The Company also agreed to pay a referral fee of 5% of the fundraising amount to consultants of the Company by allotting and issuing a total of 55,600 new ordinary shares of US$0.001 each at a price of 30.0p per share. These placings and allotments were completed on 21 May 2019.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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May 31, 2019 06:25 ET (10:25 GMT)

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